Talking chips (again), Micron, Apple and Microsoft, plus AB Foods, Curry's, Halfords, Moonpig and UK M&A

Join the team as they run through the continuing chip squeeze and why it's good for Micron but bad for customers like Apple and Microsoft. 

Plus a look at UK M&A deals and a roundup of consumer stocks, with an analysis of the Halfords and Moonpig results and a look ahead to updates from Associated British Foods, Curry's and Sainsbury's.

Transcript

SPEAKER_01 0:05

Hello and welcome to our Friday edition of the Shows of Fire Podcast. As always, I'm joined by James and Steve. How are we doing, guys? Well good in.

SPEAKER_00 0:13

Well, like everyone in, I'm absolutely sweltering, and and it just makes me feel a bit like the wicked witch of the west. I'm melting, I'm melting. Everyone's in the same boat, right?

SPEAKER_01 0:23

But that's a shirt. That is a proper shirt, Steve. I'm very impressed.

SPEAKER_00 0:27

I've got my melons out.

SPEAKER_01 0:29

Yeah, get your melons out. Um, and uh and another another crazy week in markets, you've got the cost be down six percent today, and and we talked about it on Wednesday. You know, you might think it doesn't matter, but it really does because um it's leading the US market now. It is almost a tech proxy, kind of tail wagging the dog. So the SP has been down. No, rather it hasn't been down, it's made no gains for four days, and that's the longest run since March. Um, but we had micron results midweek, Steve.

SPEAKER_00 1:01

Yeah, uh I mean they were outstanding results, and they absolutely um smashed forecasts. Um, and and and I think the key factor here was just how upbeat um the commentary was, and that that's what really captured the market's imagination. So that the shares ended up, I don't know, was it 14, 15, 16 high or something? It was an enormous jump. And I suppose what it really tells the markets is that actually the AI trade is still very much alive and well, and this is a massive bottleneck now. Uh, memory chips are becoming a really big issue because we simply cannot manufacture the high-level advanced memory chips um to to meet demand. So this is not something that's gonna go away anytime soon. And some cut some commentators have been talking about two, three years before um the the tightness in the memory market really eases up. So there's there's a long, long runway for memory chip manufacturing and and the AI trade in theory.

SPEAKER_01 1:57

Yeah, I mean, I I did catch a couple of the um comments from Micron. They were absolutely outstanding. They said they've got 16 clients that were they've got order books of a hundred billion.

SPEAKER_00 2:07

Yeah, I mean it's been one of the the the um the perceived risks about micron is it it has its very large clients. Um, so um concentration uh you know can be an issue, but uh at the end of the day, most of its clients, if not all of its clients, are just chucking lots and lots of money each way. Um, of course, there are as as you pointed out to me off camera, um, of course, the the payoff for this is largely it's all of us, you know, it's the consumer because we're going to be asked to pay more for certain devices. And and this has come through in in waves. Apple recently announced um price rises across their product range. And and this was full run. We we ran a story about a week ago um based on Tim Cook's uh comments about we cannot we can no longer swallow the cost of um of infrastructure, and so we're gonna have to pass those costs on. We flagged this up a week ago, so it's not really a shock to to us and listeners of this podcast, but ultimately the market is suddenly realizing Jesus, there's there's a there's a huge uh follow-through, and it's largely going to be felt by the consumer. So, I mean, Dell's been talking about this for a long, long time, but their consumer market has been shrinking and shrinking and shrinking, and it's it's um its corporate market, it's its data center market has been booming and booming and booming. So it's been able to offset those those pressure points. Um, Microsoft might be able to offset those pressure points to some degree as well. Samsung as well, obviously, it's selling at very high margin, but it does sell lots of consumer electronics. So it's really a case of seeing who your end customers are. If it's a consumer, you like to feel start feeling the pinch.

SPEAKER_01 3:42

Yeah, James talking of consumer, over to you. A couple of good reports this week.

SPEAKER_02 3:47

Yeah, these consumer stocks continue to sort of defy gravity wise, don't they? Given the noise around the consumer. So Halfers, they've gone and done it. The tire seller with traction, um uh upgrade four year, yeah, four-year 27 profit guide. Um garages seems to be the growth driver for this business. But management did sound a bit cautious on the outlook for big ticket spending. So you know, let's not get too carried away. The other one that caught my eye was Moonpeak. Now, when it came to market, it invited a bit of ridicule when it kind of talked up its credentials as a tech company, but it really does seem to have something special here, so it's um better than expected, eBit DAR for the year, 75 million in free cash flow, and launched another buyback. So that went down very well with the market. I think you know those data assets really do seem to be a competitive advantage as they send out reminders to customers, etc.

SPEAKER_01 4:32

Isn't it interesting that consumer stocks are doing well? And I noticed today, I say a bit of a choppy market, but you've got um defensive stocks like Sainsbury's and Tesco's are among the leaders on the FTSE, Imperial brands, bats. There seems to be a shift among investors towards those. But the other thing I've noticed, I mean, we've noticed this week and we've talked about it already, this massive wave of MA that's coming into the UK market. Another one yesterday with advanced medical solutions uh being taken. Now they were in a bid situation a couple of months ago. TA Associates, private equity firm, walked away and the shares dropped to two quid. But um, now it's been um another bid has stepped up and uh they're gonna pay 660 million for it. EasyJet, Castle Lake have come back with an improved bid offer it's around five billion pounds, and easy Jet have said try again. They said, you know, we we we're confident in our standalone uh business, but if you want to come back with a bit of an improved offer, we might have a little chat. Um, so but we've got more consumer stocks next week, haven't we?

SPEAKER_00 5:39

MA is really interesting, I find. I mean, we've been talking about the the discount on UK stocks for for absolutely years, and there's always been this idea that um that that discount can narrow um over time. And what we've seen actually is that MA has come in and cherry-picked some of the best quality assets off the UK market. So rather those quality assets lifting valuations that have actually left the market to leave you know lower quality assets on the market. So it's it's a real it's been a real problem, I think. There's still lots of high-quality businesses in the UK. Halmer's a great example. It's always had a really full rating, it's always been well respected by the market, and there's no hit uh sense of MA going on there. But you can get really highly valued companies in the UK, but across the board, you're just seeing the best bot best assets being cherry-picked off, and that's the real challenge, I find.

SPEAKER_01 6:31

Well, there's something like 40 deals on the table at the moment, and some of them are whopping. I mean, they say EasyJet's 5 billion, but Seagrow, uh US firm Prologis, has come in and is talking 12.7 billion for it. I've got to add all these up. I'll put something out next week on you know the size of these deals and when they expire, etc. etc. But James, I was gonna come to you and say more consumer names next week. You've got quite a few, haven't you?

SPEAKER_02 6:55

Yeah, we've got Sainsbury's. You mentioned Sainsbury's got the Q1 update, uh, a bit of a greater skew to general merchandise, I think, than Tesco. So, you know, how's that Argos business holding up? Um we've also got uh ABF's Q3 update now. Uh Primark, big European exposure. What's the heat wave doing for clothing sales? You know, if it's a little bit warm, it's nice. If it's scorching, it it's not good. And we'll probably get a bit more detail around the uh the Primark D merger as well. So you know, very interesting week ahead.

SPEAKER_01 7:22

And curries, I think, as well. Maybe an AGM training update.

SPEAKER_02 7:26

That's right. And then at the small cap end of the market, we've got um cake box, which is uh egg-free cake, and uh audio hardware group focus, right? They're both putting up numbers, so we'll be all over those.

SPEAKER_00 7:36

James, it'd be really interesting. Uh I mean, just given what we've just been talking about in terms of um uh memory chips going up. Um, curries would be a really interesting company to see if they're giving any sense that they're gonna have to pass on prices to consumers. Um, that could be a really good bellwether as to to what extent that end of the consumer market can hold up.

SPEAKER_02 7:56

Yeah, absolutely. It was a good read on kind of the technology cycle and the consumer. So, yeah, very interesting update.

SPEAKER_01 8:02

And still have a bit of a dearth, a bit of a dearth of tech, but you're looking at Nike next week.

SPEAKER_00 8:06

Yeah, I mean, we've we've we've written a regular kind of look ahead to what's coming, the most interesting stocks are coming next week. That's on our website. This says go and have a look at that. Uh, we've focused on uh Sainsbury, uh, A B foods, and and Nike. It's I mean it's it's it's been in transition for a little while now. It's got a relatively new CEO. James knows this story better than I do. But I mean, what it'd be really interesting to look at again at guidance is not so much about the the numbers announced, they're always going to be important, but it's more about the the tone of the conversation, tone of the commentary. Are they sounding more upbeat? Do they sound like they're pushing on and finding success with their their turnaround story, or are they starting to see struggles? They know we know they they've had issues in China, we know the um the conflict in the Middle East has has impacted them. So, what kind of commentary noises would be making? I think that's probably gonna set the tone in terms of their share price.

SPEAKER_01 8:58

Yeah, absolutely. Um, I mean, for me, I'm just uh all I'm hoping for is an England win of the weekend because um my little uh my little World Cup selection. Um I I because another thing I've been looking at is every now and then I like to kind of keep an eye on what are the most shorted stocks in the market. And I noticed three of uh three of the names I picked out Domino's, Greggs, and Ricardo are all on the naughty step. So um I know the longer England stay in, the better it's gonna be for these guys, but uh we'll see how that pans out. Anyway, on that note, we'll wish you a uh good weekend. And I say if you've enjoyed this podcast, as always, please like and follow. And if you've got questions for us, send them in to editorial at shesify.com because we're always happy to discuss what you guys want to talk about.

SPEAKER_00 9:45

Absolutely, and Ian, before we go, very important. I think listeners are made aware, and we have a new uh retirement wealth and retirement show um coming up in November. It's a live event. Um, you can uh buy tickets for it on our website. There's loads of information there. Um, it's a great chance to meet a whole range of investment trust fund managers. Um, you really get a chance to hear their presentations, but go and speak to the people themselves, you know, ask them your individual questions. So it's a really good opportunity. So look out for that. That's coming in early November. Uh, all the details are on our events page on the website. So and until the next time, have a good weekend. Come on, England, and uh, we'll see you next week. Take care, guys.

SPEAKER_01 10:27

Cheers, Dave.