In this week’s Commercial Awareness update, we discuss a record for the FTSE 100, Paypal’s acquisition of iZettle, Ocado’s automated shopping technology, the rise of banking apps and the changing gambling laws.
FTSE 100 breaks record
The FTSE 100 reach a record high earlier this week as it closed above 7,800 points for the first time ever on Monday. The latest surge is largely attributed to tensions between the US and China easing, giving investors more confidence in the markets. There has been recent talk of a full blown trade war between the two powerhouses, but on the weekend the treasury secretary and Trump’s top economic advisor, Larry Kudlow said that an agreement has been reached with trade delegates from China. These comments were encouraging, leading to this rise in markets across the globe and the dollar gaining on other major currencies. The pound fell to a year low against the dollar, which again supported the boost for the FTSE 100. There are predominately international companies listed on the exchange, who make their profits in dollars and other international currencies - if sterling weakens, revenues are worth more when converted to pounds. The retail sector saw particularly strong gains, with M&S and Sainsbury both rising.
It’s not just the markets which have risen in the last week, with the oil price continuing to increase and brent crude oil reaching $80 a barrel. The price of oil dropped below $40 per barrel back in July 2017, but in the last ten months oil prices have consistently risen. There could be a number of reasons for this - OPEC (Organisation of Petroleum Exporting Countries) put in place controls on supply to inflate prices. However, increasing demand from across the globe and Donald Trump exiting the Iran nuclear deal (Iran exports around 2.5 million barrels a day) have also driven up prices to the current four-year high.
Questions to ask yourself… Who loses out if oil prices increase? Will the FTSE 100 reach 8,000 points this week?
Companies to watch
Payments giant Paypal has reached an agreement to acquire Swedish start-up iZettle in a deal worth $2.2 billion. iZettle were on the verge of an IPO which would have valued them at $1.1 billion - half what Paypal has agreed to pay for the company - but now have opted to accept Paypal’s offer. This is the largest acquisition in the firm's history and opens up new markets.
iZettle became into prominence offering small businesses a portable card reader and now has traction across Europe and Latin America. It has also recently launched a platform to support e-commerce businesses with invoicing and other financial functions. The acquisition means Paypal will be able to increase their offering to smaller retail businesses, and they hope to take business from competitor Square (often iZettle is called the “Square of Europe”).
Online supermarket Ocado was given a huge boost last week after signing a deal for their technology to be used by US firm Kroger. You may have recently watched videos of Ocado’s automated technology packing groceries at their warehouses. A number of firms have struck deals to use the technology, with this latest Kroger deal being the biggest to date. Kroger is one of the biggest retailers in America, with revenues of $122 billion in 2017 - they will be using Ocado’s technology but also will take a 5% stake in Ocado as part of the deal. On Thursday, Ocado’s share price rose from 552p to finish the day at 797p (a 44% rise) - many investors have been underwhelmed by Ocado’s performance to date, but this latest deal paves the way for it to become one of the biggest tech innovators in the UK.
Questions to ask yourself… Is $2.2 billion for iZettle good value for Paypal? How can Ocado gain more market share in the UK?
App banking on the rise
A report from data specialists CACI shows that more UK customers will be using a mobile app compared to online banking to do their banking by 2019. In 2017, 20 million people used their phones to manage accounts and this will increase to 35 million adults (72% of the adult population) by 2023 the report predicts. In the same year, the average customer will only visit a branch of their bank twice a year, which justifies the UK’s largest banks announcing plans to close a number of their branches.
Using mobile phones to manage our money is saving us millions in bank charges, according to commentators in the FinTech world. Having immediate access to insights on how you are spending and the ability to set limits has led to more consumers avoiding charges such as those for going into your overdraft.
Questions to ask yourself… What potential problems come with more customers banking on an app? What will the high street look like in 20 years?
Betting machine stakes cut to £2
After months of speculation the government has committed to new rules that set the maximum stake on fixed-odds betting terminals to £2. Currently, customers can spend up to £100 every 20 seconds on casino games. This is a big step for the government which is clearly looking to clamp down on gambling of this type. Such terminals have been labelled as the “crack cocaine of gambling” in the past. British people spend £1.8 billion a year on these terminals and bookmakers earn a significant proportion of their revenues from their usage. William Hill generates half its revenues from the terminals and has said its stores could make a loss after the change. This is likely to impact on the taxes the government make from this form of gambling and could lead to job losses in the sector.
There was some good news for UK bookmakers last week, who will benefit from a landmark US ruling which removes a federal law that bans sports gambling. This is expected to open doors for the big UK bookmakers to expand into the US markets - this boosted the share price of all the major betting companies with a US presence.
Question to ask yourself… Should the government be setting limits on gambling?