Daily Thematic: Are US Stocks Still Expensive? and more

In this briefing:

1. Are US Stocks Still Expensive?
2. India: Coal Availability Improves at Power Plants, but Utilizations Yet to Pick Up on Lower Demand
3. Seven Eleven, Familymart and Lawson Find New Growth Strategies in Tighter Market
4. Business Happenings in the Americas that May Be “Below the Radar” – Week Ending December 22, 2018
5. Japan Convenience Stores Still Innovating in a Saturated Market

1. Are US Stocks Still Expensive?

There are striking parallels between 1929 and 2018.  

The 1929 crash put a halt to a nine-year bull run on the market.

Up until October 1929, same as this year, market consensus was that asset prices could only go up from their current level.

As we mentioned in When the Tide Goes Out, Dominoes Fall, a decade of building up excesses meant a painful burst, back 79 years ago: between October of 1929 and September of 1932, eighty-nine percent of the value of stocks was erased and the market didn’t recover to its former peak until 25 years later.

Are we in a similar situation right now? 

2. India: Coal Availability Improves at Power Plants, but Utilizations Yet to Pick Up on Lower Demand

In the first half of FY19, there has been a serious shortage of coal in several thermal power plants in India which was affecting as much as 25% of total capacity of power plants in India. However, it has improved considerably now. As per latest Ministry of Power data as on 23rd December 2018 for 124 plants, coal shortage has become zero in pit head plants and there are only 12 plants in non pit-head category with coal shortages. This change is a significant improvement in coal availability situation for power generation sector in India.

However, the utilizations have not gone up that much for power plants on a cumulative basis across the country. The average utilizations (Plant Load Factor or PLF) for overall India generation capacity was 62.6% for April to November 2018 period and this was 62.7% in November indicating no significant improvement. This virtually no improvement in power plants’ utilization could be linked to lesser demand for electricity because of change in weather conditions and also indicates that coal supply situation may not have improved that much.

Nevertheless, this will reduce the pressure from Power Plants and the sector on Coal India Ltd (COAL IN) for more supplies. However, we many not see much change in production and volumes for Coal India Ltd (COAL IN) which has seen a significant decline in recent months. Another implication is that when the overall demand for electricity comes down, the demand in spot market will also be lower accordingly. It is directly relevant for the merchant power companies and Indian Energy Exchange (IEX IN).

3. Seven Eleven, Familymart and Lawson Find New Growth Strategies in Tighter Market

The following is an in-depth review of the big three Japanese convenience store (CVS) players, Seven Eleven (Seven & I Holdings (3382 JP)), Familymart (8028 JP) and Lawson Inc (2651 JP). This follows our review of the Japanese convenience store sector overall, which is best to read first.

The key operational and strategic themes relevant to investors regarding the Big Three in Japan:

• Saturation has encouraged the top three operators to take over the remaining smaller chains while pushing into regions where they have fewer stores.
• All are expanding new forms of retail:
  • Seven Eleven and Lawson have launched new e-commerce ventures that make the best use of their existing store networks and could reach national coverage quite soon.
  • Diversification: Familymart, in particular, is tying with all manner of partners to try and come up with a hit hybrid format to find new growth.
• While competition from drugstores and discount food retailers is a threat, convenience stores will continue to find new growth from e-commerce, hybrid stores and innovative products.

4. Business Happenings in the Americas that May Be “Below the Radar” – Week Ending December 22, 2018

Highlights of significant recent happenings include:

5. Japan Convenience Stores Still Innovating in a Saturated Market

The following is an in-depth review of the Japanese convenience store (CVS) sector and, in particular, the top three players, Seven Eleven (Seven & I Holdings (3382 JP)), Familymart (8028 JP) and Lawson Inc (2651 JP). Also covered are the smaller firms like Ministop Co Ltd (9946 JP), Poplar Co Ltd (7601 JP), Daily Yamazaki, Cvs Bay Area (2687 JP), Three F Co Ltd (7544 JP) and Secoma which are targets for the Big Three.

The key operational and strategic themes relevant to investors in CVS in Japan:

• The Japanese convenience store sector may have reached saturation but this has just encouraged the top three operators to speed up their quest to take over the remaining smaller chains while pushing into regions where they have fewer stores.
• At the same time, all are looking at new forms of retailing to expand further:
  • All of the top three had previously failed to come up with coherent e-commerce strategies, but this year Seven Eleven and Lawson have launched new ideas that make better use of their existing store networks and could reach national coverage quite soon.
  • Diversification is another strategy to overcome saturation, and Familymart, in particular, is tying with all manner of partners to try and come up with a hit hybrid format to find new growth.
• While competition from drugstores and discount food retailers is a threat, convenience stores will continue to find new sources of growth from e-commerce, hybrid stores and innovative products.

This first report reviews the sector overall and the main players, while a second report looks at the big three CVS operators – which have a combined 91% share of the market – in detail.