21 April 2016
Week In Brief: BUSINESS AND THE CITY
MOVES ON THE HIGH STREET: Your friendly local estate agency is changing fast. It may be still trading from that branch in the high street, but generally the future is on-line and that increasingly means that the agents need to get their properties onto one of the specialist on-line display websites. These are becoming very sophisticated and allow prospective buyers to key in exactly what they want, up pops a list of properties that ought to suit, usually from a range of agents. There are really only three major on-line websites, Zoopla, OnTheMarket, and Rightmove, the latter being the biggest. Consumers of course usually go to the site with the most comprehensive coverage, so competition between the three has been intense, each trying to get as many agents as possible signed up. One of the attractions for the agencies signing is the quality of the software to allow the sites to display photos, plans, and videos to best advantage and to allow ease of use to the potential buyer. Rightmove has long been the winner there, and Zoopla has suffered from a steady erosion of its agency customers to OnTheMarket. Now, Zoopla has struck back by acquiring the leading specialist designer and operator of property software, The Property Software Group, partially owned by the private equity unit of Lloyds Bank. Their systems are used by around 8,000 agencies to manage their internal systems, so Zoopla is now in prime position to sign those agents up to compatible systems. The loser, says our man with the two tone Mini Cooper and colour coordinated iPad, is OnTheMarket, who have in any event been having trouble with its agency customers over pricing and alleged poor service. Rightmove and Zoopla are publically quoted – Zoopla’s shares rose from 240p to 285p on announcement of the acquisition, which will be funded by some cash and extra debt.
EXIT: AVOIDING A BEAR?: At the other end of the property market, in the commercial sector, one of the recent big entrants, accountants Deloittes has decided on a reversal of policy and is selling much of the property professional services and consulting business it acquitted in 2010, mostly from long established commercial estate agency Drivers Jonas. The concept then was to build an all services high quality one stop service to the property industry, and it has had some success. But increasingly, with modern regulatory regimes and a need for actual as well as perceived independent advice, Deloitte found itself conflicted and not able to act on some aspects for key clients. As a result, the property management business has been taken on by Knight Frank, the West End based, ever growing commercial and residential agency; the leasing business is been acquired by Gerald Eve; the City of London investment team is going to Savills; which just leaves the national investment business, where Deloitte says discussions are “on-going”. The remaining business will stay – it deals with tax structuring, construction and planning advice, and advice to tenants on professional matters. Although understandable, the property market is looking a lot less lively this year than last, with deal turnover said to be down over a third in the first quarter of 2016, so this may be a timely exit.
WHEELS NEEDING OILING: If it’s not one thing, it’s several others. The oil price having seen a sharp recovery due, it is thought, to rising demand which was bringing the over-supply imbalance back in line, had slowly drifted back below US$40 a barrel but suddenly rose to US$44 at the beginning of this week. This was due to several news items which suggested that supply would become constricted – a strike in Kuwait shutting down half the country’s output, and problems keeping the black stuff flowing in both Nigeria (a leaking major transfer pipe) and in Venezuela (payment failures as the economy breaks up). It is also rumoured that overdue maintenance in the North Sea will reduce output there this summer. All this means that stockpiled reserves are been used up and the overhang of supply is vanishing. Supposedly.
UNSEATED AT THE FINAL FENCE: More problems for Tesla, the electric car company who fessed up as to its failure to hit delivery targets a month ago. The issue this time is a minor problem with a seat locking mechanism in its new Model X, its seven seater SUV model, but it has meant that Tesla has had to recall the entire production – of 2,700 cars – to fix it. Sales of the Model X have been taking off well and this is not likely to do much harm overall – class recalls are common now. No cars have yet arrived in Britain from the factory in San Francisco, but some are at sea and will be fixed when they arrive.
GOLD PLATED: Bad news for the world’s favourite bank, Goldman Sachs. They have been having a bad time recently, with Bernie Sanders criticising their generosity to Mrs Clinton on the going rate for speeches. They may have to cut the payment rates now – revenue in the first quarter fell 40% and earnings were 56% down from the comparable last year. Goldman had predicted this, as they saw turndowns coming in most of their key businesses, and in fact the share price rose about 2% on the announcement, with the market expecting a better performance this year. The bank said it will be focussing on cutting costs this year – sorry Hillary – and that bonuses will be well down.
ENCOURAGING SAGA: Maybe Goldman’s should be looking at the example of SAGA, the UK (Folkestone) based provider of specialist financial services and travel to the over 50’s age group. Last year’s profits were up from £114m to £176m, and the company pushed the dividend up by a similar percentage – and said it expects to do more of that in the future. Both business areas are said to be doing well, and the chief executive, Lance Batchelor, says the company’s loyal customer base should present opportunities for further growth by offering new specialist products.
MORTGAGES IN STORE: Following Tesco’s announcement last week that it was once again trading profitably and that the restructuring of the business was proceeding well, it announced expansion plans in one non-core part of the business that it intends to keep. Tesco Bank, which offers basic but efficient banking services to its customers and non-customers, is to expand its residential mortgage business. The intention is to grow this by working with a specialist mortgage broker, London and Country, and soon with other brokers as well. This is a new trend (well, as readers with longer memories will recall, it is actually a reversion to a model of some forty years ago) but is one being adopted by several banks, including HSBC and TSB. This means customers are pre-screened and the proposal structured before it ever hits the bank, keeping down fixed costs for the bank. The broker charges successful applicants a fee. Soon to come – brokers in the Tesco fruit section, advising for a small fee on what would make a good fruit salad?
KEY MARKET INDICES: (as at 20th April 2016; comments refer to changes on the week; $ is US$)
Interest Rates:
UK£ Base rate: 0.5%, unchanged: 3 month 0.71% (rising); 5 year 0.93% (rising).
Euro€: 1 mth -0.28% (rising); 3 mth -0.25% (falling); 5 year -0.12% (rising)
US$: 1 mth 0.46% (steady); 3 mth 0.50% (steady); 5 year 1.18% (rising)
Currency Exchanges:
£/Euro: 1.26, £ rising
£/$: 1.43, £ steady
Euro/$: 1.13, € steady
Gold, oz: $1,237 falling
Aluminium, tonne: $1,546, rising
Copper, tonne: $4,797, rising
Oil, Brent Crude barrel: $41.75, steady (but see item above)
Wheat, tonne: £105, steady
London Stock Exchange: FTSE 100: 6,354 (rising). FTSE Allshare: 3,474 (rising)
Briefly: Commodity prices continue to edge upwards, with oil continuing to strengthen – but see above. Sterling continues to slowly improve against the euro, with sterling interest rates also edging up once more – as are euro rates, though still in negative territory. And the LSE indices continue their ascent. At the moment the market seems to be fairly robust against a possible Brexit vote on 23rd June.
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