October 24, 2005 | posted by Michael Baxter in Uncategorized | comments (0) |

It was the 15th monthly drop in succession, and according to Hometrack house prices have fallen 3.7% over the last year to an average of £160,990, from £167,000 at peak in June 2004. Overall, the fall for October reported by Hometrack was 0.1%, the third month in a row that prices fell by that margin.

It’s all down to too much supply says Hometrack. Its housing market economist John Wriglesworth said “House prices are continuing their bumpy path towards more affordable levels, and this has helped buyers come back to the market over the summer. However, we are still not in recovery mode in terms of house prices, as supply continues to outstrip demand. With buyers still obtaining an average of 7% discount off asking price, vendors have been slow to set prices at realistic and affordable levels. However, lower interest rates, growing incomes and full employment, as well as enders relaxing their lending multiples are all helping boost demand, albeit slowly.

“Hometrack believes the present trend of house price falls will end before the end of this year. While house price falls are on track to meet our -5% forecast for the year, we expect a reasonably strong rebound for 2006. While another boom in house prices is not in prospect, a house price crash can clearly be ruled out.”

Of course, if Hometrack is right and prices do pick up next year, the average house price in proportion to income will still be close to an all time high - and while it might well be correct to say there will be no crash next year, we still believe that that the market remains vulnerable. In the past, when we experienced high inflation, a mortgage became cheaper in real terms very rapidly. This is no longer the case, and the market has yet to experience the consequences of this sea change.

October 24, 2005 | posted by Michael Baxter in Uncategorized | comments (0) |

Competition is a good thing for consumers of course, but maybe it’s good for the companies in the market place too. It appears that the extra dynamism that competition brings to an industry increases customers interest, and ultimately leads to a bigger industry altogether. Take mobile phones in the UK, as you have no doubt noticed, there’s a lot of competition. In parallel with this the market has grown - and we are now approaching 100% penetration for mobile phones in the UK, as is the case in Italy, but in France, with it has just three major mobile network players- Orange, the Vivendi/Vodafone-owned SFR network, and Bouygues Telecom there’s just 70% penetration.

The UK, of course has got its virtual mobile phone companies, the likes of Tesco, Stelios’s EasyGroup and Virgin. It means less profit for the main network providers, T-Mobile, for example supply Virgin, because they have to share the revenue from the venture with the virtual mobile phone company, but as it seems to result in a bigger industry and keeps the regulator happy to boot, they are not complaining too loudly.

I’s thought that French regulators want to see more competition. Enter two of Britain’s most successful entrepreneurs. Sir Richard Branson, and Charles Dunstone of Carphone Warehouse are clubbing together to launch the Virgin Mobile Phone network in France, to be distributed across Carphone’s 300 French stores. The service will use the Orange network.

Apparently, the Virgin name is almost as well known in France as it is in the UK, so it already has a strong brand on which to build. It’s not quite so well known in other European countries, but even so it’s thought that Virgin Mobile will be expanding across the continent now.

The company is already enjoying success in the US in a joint venture with Sprint and in Australia.

October 24, 2005 | posted by Michael Baxter in Uncategorized | comments (0) |

All but the recently estranged from Mars should find little of surprise in the latest headline figures from Ernst and Young on profit warnings. The Sunday papers may have proclaimed the report as if it was some kind of shock and horror, but actually hearing that there’s been a 39% increase in the number of profit warnings issued by UK quoted companies in the last quarter, to the highest number for three years, is about what you would expect. Quoted companies do make up a key part of the UK economy, after all, and if the economy dips and slows down, then it is hardly a surprise to hear that our companies have suffered too.

But, look beneath the headlines, and perhaps things become more interesting.

For London the three months was bad, but not unusual. The region usually leads the rest of the UK in terms of the absolute number of warnings, but actually its third quarter performance was exactly on par with its average. Ignominiously, the South East topped the list by region, but look a little further north towards Yorkshire and the North East and disaster strikes. The region saw over three times more profit warnings than usual.

Perhaps more light can be shined on the performance if we look at sectors. The Construction and Building Materials sector performed badly, but then as the house market has slowed down that’s hardly surprising. In all there were 10 profit warnings in this sector, precisely half of them falling into the South East, with Midlands and East Anglia picking up another three. Also down was media and entertainment, again, this is what you would expect, this sector does after all feed directly off the ever more frugal consumer.

But also suffering were software and computer services, it’s not so obvious why. A big factor cited was that it’s taking longer for companies to sign contracts.

As for why Yorkshire and the North East had such a bad three months - no obvious reason leaps out. Hotels and Leisure performed badly in the region, there were six warnings in the sector nationwide, with four of them falling in this region. But, overall, Yorkshire and the North East suffered 22 profit warnings spread over 13 sectors, compared to an average of just eight warnings in recent years.

There is one big surprise in the figures. Retail actually saw an improvement - is this a sign of things improving? Or merely a sign of how bad things have got: they don’t need to give us the bad news of a profits warning, we already know it’s bad.

October 24, 2005 | posted by Michael Baxter in Uncategorized | comments (0) |

Nine weeks ago we led with a story about a treatment from GlaxoSmithKline for Bird Flu. Since then, with the publicity surrounding the Tamiflu treatment from Roche reaching near pandemic levels, we have been a little bemused as to why there was such little talk about the GSK treatment Relenza. This weekend the Sunday papers went some way to readdressing the balance. The Business paper covered the GSK drug on its front page - but warned that the process of converting Relenza from its current powder to be inhaled into more potent injectable or oral forms could take two years. The Sunday Times on the other hand had GSK and bid flu on page 3 of its business section. It appeared to contradict the Business paper with the headline “Glaxo: bird flu vaccine can be ready in months,” but in fact was referring to an announcement it expects the company to make this week, that it could produce a vaccine to the virus within four months of it mutating to a form which is contagious amongst humans. The article only mentioned Relenza in passing. Meanwhile, the Observer chose to focus on Tamiflu and said the Swiss pharmaceutical giant Roche is accused to putting profits before people. It said that Gilead, the company which developed the Avarian flu drug and licensed it to the Swiss company, says that Roche has not marketed the drug well and has been negligent in the manufacturing of the drug - leading to product recalls. It also looked at the growing pressure the company is under to allow generic drug manufactures to produce the treatment.

October 21, 2005 | posted by Michael Baxter in Uncategorized | comments (0) |

For some time experts have been warning that the Chinese growth machine would slow this year. Some feared that a slowing China posed a big threat to the global economy, causing the Japanese recovery to fizzle out, and spilling over across the world, hitting the US and Europe. But, if this is slow down- we would like to see what the recovery is like. During the July to September period, annual growth was 9.4%. But as ever, of course, what is good news for some is bad for others. You would have thought analysts would be celebrating the fact that the much feared Chinese slowdown is not happening. Instead, they were talking about the continuation of a run on commodity prices- fearing that there will be no let off in global inflation pressures.

October 21, 2005 | posted by Michael Baxter in Uncategorized | comments (0) |

If you look at the graph, it would appear a retail recovery is under way. And indeed that’s how many interpreted the latest figures from the Office of National Statistics.

Retail sales jumped 0.7% between July and August, twice the level expected, and in the ‘topsy turvy’ world of economics, analysts greeted the good news with dismay. The Independent, for example, said: “Prospects of rate cut dashed after strong recovery in High Street sales.”

But actually, our official compiler of the data was less sanguine. It pointed out that the annual growth is the lowest since the beginning of 1996, while the three-monthly growth in retail sales volumes in September was the lowest since May this year.

And much of the increase was due to food sales- these were up 1.5%. Remove this from the equation, and all of a sudden our famished shoppers upped the spending by just 0.4%.

Also, remember, that figures from both the British Retail Consortium and the CBI indicate a High Street still in crisis.

October 21, 2005 | posted by Michael Baxter in Uncategorized | comments (0) |

Last year Nokia misread the market. While its R&D department was busy designing fancy little numbers, turning its back on ‘boring’ clam shell phones, it turned out that it was precisely the phones that Nokia was not producing which were tickling the fancy of its would be customers. As a result, its market share slumped, falling to a five-year low- and dipping below 30% of the overall market.

Since then, things have been getting better. And while Motorola sided with Apple and launched an iPod phone, Nokia has its own MP3 phone, and its quite a beast. With a twisting multifunctional key pad and one gigabyte of storage, the Nokia 3250 can store 750 songs, compared to just 100 songs on the Motorola iPod product.

Nokia has plans for more products in the line- and has launched the XpressMusic brand - to build upon down the line.

And then yesterday the company revealed its latest results, profits were up an impressive 29% to $1.05bn.

But while Nokia was busy telling the world how well it was doing, IDC released its latest stats on the mobile phone market. The research firm reckons Nokia achieved a 32% market share in the last quarter- compared to 29.4% in the same period last year. It estimates Nokia sales in the quarter just ended at 66 million phones. Not bad you might say.

But then contrast this performance with Motorola’s. It successfully managed to treble profits, upping its market share - or so said IDC to 18.6%, from 13.3%. So the gap is closing.

Analysts were also concerned that Nokia’s sales impetus came from China. There’s nothing wrong with that per se; it’s good the company is cracking this massive market. The trouble is, in the developing economies it’s the cheaper less profitable phones that are the big sellers. And what’s really got the market spooked is that sales in North America and Europe where the high margin products tend to do better, are not going so well. Its phone might twist, but as of yet, its customers are not shouting out for it.

As a result, and despite the big jump in profits, shares fell 5% yesterday.

October 21, 2005 | posted by Michael Baxter in Uncategorized | comments (0) |

When Google was floated last summer, it was valued at over 100 times its annual profit. Its valuation was greater than the more established and bigger profit-making Yahoo, which itself was considered overvalued by many. Talk started to resonate through the misty dotcom quarters that another dotcom bubble was in the making.

Talk of a bubble has not completely receded. CNNMoney mocked up an image of a floating balloon with the legend Google emblazoned on it this morning, while others fear than a share price which takes its valuation to 40 times consensus earnings has bubble written all over it.

Yahoo too,has a p/e ratio of 45, or, more alarmingly, its market valuation is ten times projected revenue for next year.

But, on the other hand, look at the growth! We like to focus on some of the sexy companies of the tech world. And of the organisations we follow, only Amazon has yet to release its results for the latest quarter. But all the companies out of the blocks so far have one thing in common, a year of startling growth. If this continues, then today’s p/e ratios will soon look justified.

Take Google. Yesterday we heard how its legal department had been busy, fending off suits from the Association of American Publishers and changing the name of Gmail to GoogleMail. But meanwhile its founders Page and Brin and the rest of the gang on its board were preparing for the announcement of the latest results.

Profits at Google were up seven fold - from $52mn a year ago, to $381.2mn in the third quarter of this year.

Of course, the fear is that the shares wil just keep going up with the profits, so the p/e ratio will stay up there in the clouds, and eventually will crash when the remarkable period of growth does inevitably come to an end.

But, on the other hand maybe the markets are getting it right. The Google share price has shot up since flotation - but not as fast as profits. In one of those statistical quirks, the dollar share price corresponds quite closely with the $mn profits. Yesterday, for example, profits hit $381mn, the share price rose to $335.

At flotation, however, it was the other way round, with the Google share price - which you may recall was considered too high even by the world’s greatest investor Warren Buffet, $85, when the latest quarterly profits were $79mn dollars.

And there’s a lot of oomph left under the bonnet too. With its Froogle shopping engine, which will enable the company to promote internet shopping more effectively - inevitably bringing in more revenue, and with its plans to offer an Internet TV portal, don’t be surprised if the company doesn’t ultimately increase profits from the current level by a substantial margin.

It’s a similar story with the other techs; eBay’s got its plans to throw ads at us while we enjoy free phone calls, and Apple has its video iPod.

If there’s going to be another tech bubble, it hasn’t been made yet.

October 20, 2005 | posted by Michael Baxter in Uncategorized | comments (0) |

An independent bookstore in Atlanta called Chapter 11 has filed for, - yes you’ve guessed it, Chapter 11. On Monday The US laws relating to the bankruptcy protection regime are changing - becoming much tougher on US companies, and the US bookstore move might well prove to be the last chapter under the current system.

October 20, 2005 | posted by Michael Baxter in Uncategorized | comments (0) |

The UK could close down this winter- would the last one out please remember to turn the lights off. Not for the first time in recent weeks, CBI director Sir Digby Jones has warned that we won’t have enough gas. With North Sea gas running low, the pipeline from Norway not due to be finished for another 3 years, we only have enough of the fuel to last for seven days. If the winter proves to be a cold one - like the met is warning, then we quite simply, won’t have enough. Sir Digby said “They have accused us of crying wolf. Well now, it’s five to midnight. If it is another mild winter, that’s fine, but if it’s a hard winter there won’t be sufficient capacity for business and to keep pensioners warm. It will back to the days of the three- and four-day weeks.”