Stocks

Interesting, and often contrarian, Snippets on individual companies and the stock market.

Stocks

Tesco

  • Tesco results and slides are worth reading.
  • Fascinating that the presumed beneficiary is actually struggling.
  • “if customer behaviour were to return to normal by August it is likely that the additional cost headwinds incurred in our retail operations would be largely offset by the benefits of food volume increases, twelve months’ business rates relief in the UK and prudent operations management.”
  • There are clearly huge operational challenges.
  • Interestingly – the initial spike in volume (pictured) was driven by 30% of customers buying 60% of the volume (slide 23). Certain items flew off the shelves (slide 24) – you can guess which.
  • General merchandise, clothing, and fuel have been hit hard (FT suggests the latter two by -70%).
  • Staff has seen a massive spike in absence and they have had to recruit 45,000 people since 20th of March.
  • Scaling online has proven very difficult.
  • Additionally Tesco Bank will swing from £193m profit to a loss this fiscal year (due to bad debts and fall in income).
Stocks

Online Advertising Tactics

  • Interesting to see tactics online.
  • On 11th of March Amazon put a halt to almost all of its spending on Google Ads.
  • “Amazon seems to have completely removed itself from the competition for essential goods, effectively leaving one million daily visits on the table for other competitors to take.”
  • Paid search traffic to the site fell 90% almost immediately costing 11.2m visits.
  • Ebay has capitalised to a certain extent on this by bidding on high volume keywords – you guessed it – “toilet paper”, “n95 mask” and “hand sanitizer”.
Stocks

Credit Lines

  • Companies are quietly drawing credit lines and revolvers down.
  • This has caused banks to push borrowers away from this activity – it is a lot less profitable than a new loan.
  • There is obviously liquidity concern – companies want as much liquidity as possible but banks can’t satisfy it all.
  • Interesting pull and push.
Stocks

Insulin Biosimilar Competition

  • Under the radar the FDA has introduced a new regulatory pathway for insulin biosimilars (generic copies of biologic drugs).
  • “Today is a milestone for the future of insulin and other important treatments – potentially a new era of proposed biosimilar and interchangeable insulin products.”
  • This will increase competition.
  • Likely a big issue for the insulin oligopoly Sanofi, Novo Nordisk and Eli Lilly.
Stocks

Softbank

  • Blaming ratings agencies doesn’t exactly fill anyone with confidence.
  • Softbank put out this statement asking for Moody’s to withdraw rating due to “excessively pessimistic assumptions regarding the market environment and misunderstanding and speculation that SBG will quickly liquidate assets without any thorough consideration and without making improvements to its financial condition“
Stocks

Interview with Ventilator Manufacturer

  • Really interesting Interview with the CEO of Drägerwerk, the world leader in the production of ventilators.
  • On car plants being repurposed to make ventilator components – “There is little point in adapting unused production capacity to manufacture respiratory aids. I spoke with Daimler over the weekend. They would also like to help. But it’s unfortunately not so simple. We can’t build cars either.
  • Repurposing devices – “There is a lot of potential there... I believe it’s possible to use devices from ambulance service or anaesthesiology departments. Such devices aren’t meant for long-term respiration, but they can serve that purpose.”
  • The real problem is lack of experts – “It’s not about the device, but about the person who is attached to it. You have to be able to evaluate the person’s state and know how to precisely adjust the device to first save the person’s life and then ensure that they quickly grow healthy again. This requires years of experience.”
Stocks

Pershing Square Letter

  • Latest letter from Ackman’s fund.
  • Good work on those hedges.
  • “On March 3, 2020, we disclosed that we had acquired large notional hedges …
  • “On March 23rd, we completed the exit of our hedges generating proceeds of $2.6 billion for the Pershing Square funds ($2.1 billion for PSH), compared with premiums paid and commissions totaling $27 million, which offset the mark-to-market losses in our equity portfolio. Our hedges were in the form of purchases of credit protection on various global investment grade and high yield credit indices. Because we were able to purchase these instruments at near-all-time tight levels of credit spreads, the risk of loss from this investment was minimal at the time of purchase.”
  • “We have redeployed substantially all of the net proceeds from our hedges by adding to our investments in Agilent, Berkshire Hathaway, Hilton, Lowe’s, and Restaurant Brands. We have also purchased several new investments including reestablishing our investment in Starbucks which we sold in January. The proceeds of the hedges have enabled us to become a substantially larger shareholder of a number of our portfolio companies, and to add some new investments, all at deeply discounted prices. Even after these additional investments, we maintain a cash position of about 17% of the portfolio. “
Stocks

Covid Impact

  • Interesting impacts of Covid shutdown cited by companies.
  • Best Buy – “We are seeing a surge in demand across the country for products that people need to work or learn from home, as well as those products that allow people to refrigerate or freeze food“.
  • Music streaming might not actually be going up (here and here).
  • Grub CEO interview – “But demand from consumers is really a mixed bag. In some markets it’s staying stable, some are doing much better, and others are slowing. It’s not obvious how it will impact business in the long-term as the supply of restaurants are transitioning now and up to 30% of them could close because it’s too expensive to run.”
  • “…when we looked at the Chinese recovery, what we have seen is 90% to 95% of large manufacturers in China are now back to work in some capacity. Closer to 65% to 70% of small businesses in Mainland China are coming back to work from a manufacturing perspective. So we believe output is in around 65% to 75% and we are seeing that rebound.” Fedex Call.
  • “There is currently evidence of increased customer activity in the Group’s Casino and Poker products that might, in part, compensate for the sports betting disruption for a period of time.” 888 Trading Update.
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