Langton Capital – 2015-01-13 – Daily Wrap: Technology, evolution, Gregg’s, perfect markets & other:
Leisure Wrap & Other:
So the trading day is grinding to a close. We’re another day older but are we any wiser? After a day of intensive head-scratching, pen flipping and gossip, we have been considering the following. As always, contact us if you’d like further details:
Technology, innovation, evolution & change:
• We make what are meant to be a few serious points in today’s Day in the Life
• Because change is the only constant and, though there may be room for the odd retro-pub or 1950s restaurant, the market won’t sustain thousands of them suggesting that the vast majority of backward-looking F&B outlets need over time to either refocus their attention onto what the consumer wants or to leave the industry to those who already do so
• Hence not taking contactless cards is a poor idea
• And charging 50p for card transactions below a certain level is not sustainable – I mean what do you want to do, persuade people to hog the bar whilst they write out a cheque?
• And charging for WIFI (admittedly not in pubs & restaurants but more so in hotels, on trains and the like) may cause more harm than it does good
• Products must also evolve.
• Our grandparents may never have eaten a curry, sliced a pizza or even, for that matter, drunk a pint of lager – but that’s not to say that customers don’t expect to be offered the above now
• And there’s a bit of a Goldilocks think going on here.
• Because if you attempt to be too avant garde and offer a Bolivian vegetarian sharing platters in Barnsley or a skimmed rhino-milk Frappuccino’s in the Dog and Duck, you run the risk of ruin.
Momentum, perfect markets & Gregg’s etc.
• The Efficient Market Hypothesis would have it that all shares reflect all information at all time. Prices are thus ‘perfect’.
• There’s a great deal of argument about definitions, of course but, under the EMH, such things as fear, greed & momentum do not exist.
• But here on planet earth, the above exist in spades.
• Shares are oversold, overbought and everything in-between and momentum investors, to add insult to injury, buy shares simply because they are being bought by other people.
• And that can lead to the occasional ‘the King has got no clothes on’ moment as with Gregg’s yesterday.
• Because the pie chain did nothing wrong, did not shock the market.
• It simply said that Q4, though still up healthily in terms of LfL sales, was slower than the rest of the year and that comps were now tougher.
• But that led analysts to scramble for their slide rules and, when they saw that the group’s shares, this for a sandwich shop chain, were trading at around 24x EPS (admittedly falling to 22x FY16), they made a dash for the exit.
• And that, though the shares are up a little at time of writing, leaves various observers wondering what the ‘right price’ should be
• Though we like Gregg’s, rate highly Roger Whiteside and believe that the coffee market can expand a little further, we would consider that this is more likely to be ultimately below today’s level than it is above it
Random information, hopefully not all of it useless:
• Istanbul. A reminder if any were needed that terrorism & tourism do not mix well.
• Sainsbury. Busiest ever C-Store day on Xmas Eve. Delivery good. The Argos logic is apparent but still leaves one wondering why SBRY does not avoid paying the goodwill and build further distribution capacity itself
• Retailers & especially food retailers particularly strong yesterday.
• Gregg’s, not so much.
• Sharp Sterling bounce re Euro will bring some relief to those heading off to the slopes this weekend. Helps cut tour operator costs into the bargain.
• Oil below $30 at one point.
We’re so 21st Century, this morning’s Tweets (diff. font size denotes importance):
1. Technology, huh? When did you last write a cheque? Or consult the yellow pages, buy a map or even write a letter. See email.
2. C&C Group is investing over €10 million into its Clonmel manufacturing site, which will now be responsible for the majority of production
3. Alcoholic ice tea producer Harry Brompton’s is raising cash via Crowdcube. Group has raised £49,290 of a target £300k.
4. Pull’d, which raised £102k via Crowdcube mid-2015, has reported that it had a record sales week in Dec
5. The ALMR has appointed Bob Ivell, chairman of Mitchells & Butlers, as President
6. AB InBev is amongst 35 multinational companies being ordered to pay €700m back to the Belgian tax authorities
7. Chris Snowdon of the IEA has criticised the new alcohol guidelines for opening the door to more ‘nanny state’ interventions.
8. Gregg’s shares fell by as much as 14% yesterday as growth slowed and the company’s value (it is rated at >20x EPS), was reassessed
9. Supermarket shares higher yesterday as Morrison’s reassured the market that it had had a (relatively) good Christmas
10. Growth at Aldi & Lidl’s older stores in the UK is thought to have slowed per Kantar though total sales still up strongly
11. Sainsbury’s trading update for 15wks to 9 Jan shows total retail sales ex-fuel were up 0.8% in Q3 & LfLs were down 0.4%.
a. CEO Mike Coupe credited SBRY’s Xmas performance but warned that challenges remain in the industry
12. easyHotel has announced that it is to build a hotel in Barcelona. The project will be the Group’s first owned hotel outside the UK
13. British Hospitality Association has said that it is ‘going head to head’ with Airbnb. It says the sharing platform is ‘industrial in scale’
14. Intercontinental Hotels Group has opened its 5,000th hotel – the 293-room Hotel Indigo Lower East Side New York
15. Over 70% of consumers feel optimistic at the start of 2016 about their household finances and one in six are planning a major holiday
16. Ten people, mostly Germans, have been killed in suicide bomb attack in Istanbul, Turkey, which also left fifteen injured.
17. Global PC shipments fell by a record 10.6% in Q4 last year as consumers increasingly turned to their phones & tablets.
18. Sterling yesterday slipped to a 5.5yr low vs the US dollar. Oil was briefly below $30.
19. China exports were back in growth in December registering a 2.3% rise from a year ago in yuan-denominated terms.