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RESEARCH

Soda, Steak and Slacks: 10 Things We Learned This Week

Supermarkets bring in security tags, London attracts a new IPO and the M&S boss shows brand loyalty.

Housing Market Wobbles

House prices are now falling at their fastest rates since the financial crisis, suggesting the modest recovery last month might have been temporary. This would certainly be in line with earlier forecasts, which saw economists at some of the UK’s biggest banks predict the housing market would cool, with prices dropping in 2023 and into 2024. This wasn’t the only storm cloud re-appearing over the housing market this week. In the last seven days almost 800 fixed-rate mortgage deals were pulled amid fears of higher-than-expected rate rises. This is almost 10% of the mortgage products on the market and mirrors what happens after last year’s disastrous mini-Budget. According to figures published this week the average two-year fixed rate is now at 5.38%, significantly higher than the 3.03% homeowners could have got a year ago. 

New M&S Number 1 is Number 3

Who is the M&S’s biggest spender? It’s not a question you’d usually ask, but we did learn this week that its CEO, Stuart Machin, who has been in the post for just a year, is the company’s third biggest buyer of its menswear. This would indicate he doesn”t simply slip on a suit from its Smart Edit range for the annual AGM, but is loafing around in M&S chinos, polo shirts and of course, their ubiquitous underwear for most of the year. M&S, not surprisingly, declined to comment on how much he spent. But as last week’s results revealed, Machin has helped turn around the fortunes of the department store in the last year, particularly its fashion ranges. Perhaps we need to see more chief executives becoming one of their company’s top customers. It does though leave the question hanging though, about who M&S’s top two menswear customers are? 

FCA Warning on Woodford

It feels like a “twist or stick” moment for investors who bought into Neil Woodford’s ill-fated Woodford Equity Income Fund. A redress deal is on the table, but it appears some investors are still tempted by private litigation, which lawyers claim could result in higher payouts. However the Financial Conduct Authority has urged investors to stick with the current deal on the table, warning of the “unrealistic returns” being promised by those proposing legal action. It somewhat pointedly observed that criticism of the £235 million redress package came from “self-interested” parties, who would obviously earn substantial fees from litigation. Investors who are confused by these claims and counter claims will receive more information more information on the redress packaged next month before voting whether to accept the deal.

Amazon Shareholders Rebel on Pay

It isn’t just climate and net zero proposals that are galvanising shareholders of large companies. Significant numbers are also voting to curb executive renumeration, in what are widely known as “say on pay” proposals. This isn’t just a UK phenomenon, where there have been grumblings about so-called “fat cat” bonus payments for years, recently focusing on the pay packages of water company bosses. This is now an issue for US shareholders, which we typically expect to be more tolerant of executive largesse. One-in-three Amazon shareholders voted this week against pay practices at the online retailer, as shareholders cast votes on a record number of proposals at its AGM. As explained in this Morningstar article these proxy votes are seen as an important bellwether of ESG and stewardship practices, reflecting widespread shareholder opinion. Although the numbers voting down the renumeration package of senior execs wasn”t enough to sway the vote, the large numbers indicate strong feeling on this issue, with ordinary investors and asset managers increasingly demanding the pay is better aligned with corporate performance. 

CBI’s Existential Moment

It’s a make-or-break meeting next week for the embattled CBI. It has called an extraordinary general meeting which will determine whether the lobby group for business, stays in business. In its “programme of change” – sent round to members – the CBI is proposing a new president, a board shake-up and potential redundancies as it works to become a “sharper, more focused” organisation. Members will vote on whether the lobby group moves ahead with these reforms or is wound down. The outcome is by no means guaranteed, with reports that the board has appointed lawyers to prepare for possible insolvency. These proposed reforms have been made by new director general Rain Newton-Smith, who stepped into the role after the group was thrown into crisis, following a series of allegations about misconduct. This led to many high-profile members cancelling or suspending membership. Those that have left, though, will be denied a vote on its future next week. 

Tagged Steaks, Price Controls

Supermarkets appear to be a canary in the coal mine during the cost-of-living crisis. This week it emerged many are security-tagging steaks, cheese and other marginally more expensive foodstuffs, while also limiting the number of items on shelves in a bid to deter shoplifters. Although not all supermarkets are deploying these measures, and those that do are not imposing them in all stores, it is as one Co-op customer put it, depressing to see them “packaging sirloin steaks like they”re gold bars”.

At the other end of the scale, the government is discussing plans to introduce a “voluntary” price cap on marginally less expensive food items, including basics such as bread and milk. While the government says this might protect consumers from spiralling food costs, cynics may note, it could also help the government meet its self-imposed inflation targets. However, there is less enthusiasm from the supermarkets though about such action. Asda chair, and former M&S boss Sir Stuart Rose poured cold water on the idea, while the British Retail Consortium asked the government to focus on cutting red tape around food sales rather that resorting to “1970s-style price controls”. 

WH Smith Ready to Go

It isn’t just airlines, Airbnb and travel agents who look set to benefit from a busy summer holiday season. WH Smith has raised its profit guidance for this year, on expectations that airports and railway stations will be heaving with passengers. The retailer has been in the doldrums for years, amid falling footfall on the high street, competition from online retailers, and then the pandemic which saw international travel grind to a halt. Given many of Smith”s most profitable outlets are close to transport hubs this had a significant impact on its business. But sales are now booming at outlets in its travel division and the company is looking to open a further 120 travel stores, with 60 in the US, and the rest in Europe, Australia and the UK. 

A Prescription for Dr Martens

Dr Martens got a bit of a kicking on the stock market this week after unveiling a slide in profits. It reported disappointing US sales, particularly of its iconic boot and warned margins would fall this year, after sales fell 10%, due in part to overseas warehousing and distribution problems. However the British footwear company, now listed on the London Stock Exchange, said it had seen a 50% increase in sales of its “chunky” shoes and sandals. The boots, originally designed by a German army doctor in 1945, were made in Northamptonshire from the 1960s, but are now manufactured in China, Vietnam, Laos and Thailand as well as in Northamptonshire, under its handcrafted (and more expensive) “Made in England” brand. 

Too Fat to Fly?

Air New Zealand is the first airline to start weighing its passengers, in a bid to improve fuel efficiency and safety. The airline has been at pains to stress that people’s weight won’t be displayed to staff or other passengers, but will be kept in an anonymised aggregated database. It is also a voluntary scheme at present, but the airline is hoping 10,000 customers will step on the scales before boarding at Auckland airport to give it a more accurate picture of the total weight that the planes are carrying. The airline said that it already weighs suitcases, commercial freight and even the onboard meals, but to date has relied on average body weights for its human cargo. It remains to be seen whether other airlines will follow suit, and standing on the scales will become as commonplace as walking through metal detectors. 

Soda Float? Yes, WE Can

It’s a case of old technology finding new tech applications — and potentially generating billions. WE Soda, part of the Ciner Group conglomerate, indicated it would float on the London Stock Exchange this week, with a potential £7 billion valuation. The firm extracts soda ash, more commonly known as washing soda or bicarbonate of soda in the UK. This has been used in cleaning products for years, as well as the manufacture of glass. But demand has rocketed as it now used in the production of the photovoltaic glass in solar panels, and to produce lithium carbonate — needed in electric car batteries. While soda ash can be produced synthetically, WE Soda mines natural deposits in salt lakes in Turkey and Wyoming in the US. It claims this is less carbon intensive and cheaper, leading to bumper profits at the company. Given the furore recently about tech companies choosing to list elsewhere, the LSE will see this announcement as a significant vote of confidence in the London market.