Langton Capital – 2015-08-07 – Daily Wrap: Milk prices, interest rates, inflation & 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:
Milk prices (re Premier Foods directly & most leisure retailers etc. less so):
• The milk price has been extremely weak. The farm-gate price has slipped (for the UK as a whole) from around 34.5p per litre to less than 24p in the last 2yrs.
• FYI farm gate prices are ex-transport costs and/or prices in Northern Ireland have been much weaker.
[milk chart included in 11am version]
• The FT yesterday ran with the story (here) entitled ‘Dairy drags food prices towards 6yr low’.
• This is distressing for dairy farmers and not particularly helpful for supermarkets as they are currently selling 4pts of milk for £1.
• Milk is a KVI (known value item) and, as such, it’s a battleground.
• But for those companies using milk as an input, chief amongst them perhaps Premier Foods, the low price of the commodity is undisguised good news.
• Margins may, just may, be under upward pressure.
Evolution in the leisure retailing industry (re most licensed retailers etc.):
• The blurring of lines looks set to continue.
• Coffee shops are selling alcohol, pubs are selling breakfasts & now we have the news that McDonald’s is to trial table service in the UK.
• This may not worry the local pizza restaurant in the short term but, if anything, it is a sign that evolution is a constant force and suggests that coasting or free-wheeling in this dynamic industry is not an option.
The outlook for interest rates (all operators etc.):
• The outlook for inflation is benign – see yesterday’s comments re input price pressures, the lower oil price, etc.
• The Bank is now suggested, albeit in a coded fashion, that interest rates will not rise in the UK this year.
• This is 1) perhaps a short term relief but 2) does not alter the fact that the next ten or more moves in the base rate will be upwards.
• Companies, customers and others should prepare for this but, as with exam preparations, what we know we should do and what we actually do may not necessarily be the same thing at all.
House prices, interest rates & the wealth effect (re anyone selling anything to anyone else):
• House prices going down per Halifax.
• This may not last but, over recent cycles, the movement in house prices has been positively correlated to the propensity to spend.
• We await further developments but would suggest that:
o 1) home ownership has declined over recent years:
[home ownership chart included in 11am version]
o 2) one month doesn’t make a trend:
[recent house price moves included in 11am version]
o 3) London and the Provinces have de-coupled
o 4) Net mortgage repayments over recent years should have reduced the potential impact of both interest rate hikes and house value declines
• But, despite the above, we’d suggest that, were house prices to decline (which may be more of an issue in London than in the Provinces), spending would be likely to come under a bit of downward pressure.
Random information, hopefully not all of it useless (re most leisure operators etc.):
• Enterprise Inns’ shares had a good day yesterday. We’re still awaiting a strategy update from Punch Taverns.
• The Tube Strike wasn’t good news for the food & drink industry in London. Sure suburban pubs may have been busy but there will have been less loitering in Central London after work. Further strikes have not been ruled out.
• GDP estimated to be rising 0.7% on a quarterly basis. Circa 2.8% annually would do nicely. These are the boom-times, yay.
We’re so 21st Century, this morning’s Tweets (diff. font size denotes importance):
1. SSP has announced that it has agreed to acquire 32 bakery outlets in Germany from Wiener Feinbäckerei Heberer for £5m cash
2. M+C reports Vietnamese fast-casual operator Pho has secured £8m in new funding courtesy of Nat West
3. McDonald’s is to test table service menu in Mottram, Greater Manchester. This is the first time it has offered this in the UK
4. Latest BDO High Street Sales Tracker suggests poor summer with sales growth worst for 6yrs. Sales down 1.1% in July.
5. Drake + Morgan reports to end-March saying revenues rose 20% to £24.6m + adjusted EBITDA was +28% at £3.2m.
6. Marston’s has invested in its warehousing network in Staffordshire to increase capacity by 45%
7. Miller Coors reports underlying net income +9.3% in Q2, says growth driven by ‘lower brewing + packaging materials + fuel costs’
8. Journal of Alzheimer’s Association reports that red wine could slow the brain’s ageing process.
9. British Hospitality Association reports London businesses suffering a ‘nightmare’ as a result of this week’s tube strikes.
10. London City airport is for sale. Vendors US investment firm Global Infrastructure Partners are said to be looking for £2bn
11. The US hotel industry saw gains across its three key performance metrics for the week to 1 August according to STR.
12. William Hill H1. Says made ‘good operational progress despite regulatory + tax headwinds’. PBT £78.7m v £121.8m last year
a. William Hill H1. Revenues up to £808m from £805m. EPS 7.9p v 11.3p last year, dividend up 3% at 4.1p v 4.0p in 2014.
b. Wm Hill re outlook, says ‘Board is confident that the Group remains well positioned to gain share in key markets’
c. William Hill announces purchase of 29.4% of NeoGames, a ‘leading online lottery software and services provider’ for US$25m
13. Bank of England votes 8-1 to leave rates at 0.5%. Will hold QE at £375bn. Minutes suggest no rate rise this year.
a. Bank of England concedes June CPI inflation fell back to zero June, says c3/4 of deviation from 2% target due to low food + energy prices
b. Bank’s Deputy Governor tells BBC it would be ‘foolish to pre-announce’ a date for an interest rate increase
14. NIESR has suggested that GDP rose by 0.7% in the May to July quarter. Rate of growth is same as the April-June quarter
15. Halifax reports house prices down in July. Says prices down 0.6% in July v June. Expectations had been for 0.4% rise.