Langton Capital – 2015-08-10 – Pret, Coke, tips, milk prices, safe drinking & other:
A Day in the Life:
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So when is a holiday not a holiday?
Well probably when you have to organise five stops and drive 2,500km around a little bit of a country like Canada, I would suggest.
However, they say that a change is as good as a rest and, after 17 days driving around, flying here & there and checking into various hotels, motels and rented apartments, I can confirm that I could get used to the 17 days off, two days on, two days off model of working.
But that’s all academic really, isn’t it? It’s Monday, it’s time for the news and, as the late Mrs T said on more than one occasion, TINA. If you would like to come off this email list please simply hit the unsubscribe button above. Similarly, if you are getting it forwarded and would like to go on directly or if you would like to recommend it to one of your colleagues, please just hit the subscribe button and/or suggest that your colleague does too.
Pub, Restaurant & Drinks Producer News:
• Reuters suggests Pret to IPO in 2016. Says owner Bridgepoint ‘is looking to ramp up overseas profits before selling out’. The PE backer is said to be considering a U.S. listing as one option. Reuters quotes a ‘PE source’ as saying ‘the U.S. values restaurant concepts differently. It’s a much more receptive market.’ Pret had core earnings of £76m reports Reuters, suggesting that a value of £1.28 billion could be achieved if US multiples (for a UK group) were applied. Bridgepoint reports ‘we said at the time of the refinancing in 2013 that we would extend our holding period for Pret … no decision has been taken about the type or timing of exit.’
• Coke reported to be near to agreeing deal to buy minority stake in organic juice co Suja Life, valuing group at c$300m
• Tips protest rolls on, protest led by union Unite to target Pizza Express stores this evening. Unite says ‘we are starting with Pizza Express but they are by no means the only offender and we will be turning our attention to other companies after this.’ Pizza Express said that its admin charge covered the cost of running the tronc.
• Muller UK report suggests cheap milk here for some time, British farmers producing 40 pints of milk per annum more than demand. Milk supply up 1.6bn litres v 2013 says Muller. It adds ‘we are seeing a significant imbalance between supply and demand in the UK and globally and this is weighing heavily on the value of the milk produced by farmers.’
• M+C reports Soho House planning new restaurant on site of former Avalon nightclub in Shaftesbury Avenue
• Greggs heads online poll as best high street food outlet to work at. Pizza Hut + Nando’s next in line.
• UK nightclubs closing at ‘alarming rate’ says ALMR. Says nearly half clubs gone in last 10yrs. Some reopen, others gone for good. The ALMR’s Kate Nicholls says ‘people want to have their cake and eat it. You want vibe and to live in a cool area, then you need the other, edgier side of it.’
• Sunday Times reports Heron Tower, home to The Drift, Sushi Samba + other eateries may be sold to Chinese interests for c£750m
• M+C reports Inflexion Private Equity is now front runner to buy 90-strong Yo Sushi in c£100m deal.
• Sheffield University has suggested that UK’s suggested alcohol consumption limits are ‘unrealistic, largely ignored + irrelevant’. PMA quotes the university’s Melanie Lovatt as saying ‘these findings not only help to explain why some drinkers disregard current guidelines, but also show that people make decisions about their drinking by considering their responsibilities and lifestyle, rather than just their health.’
• Sunday Times suggests a number of parties are considering bidding c£1bn for motorway services operator Moto
• TUI is set to update on Q3 trading on Thursday. Group could outline exceptional costs of c£25m re Tunisia + Greece concerns
• Millennium + Copthorne Friday reported that it has agreed to buy the Hard Day’s Night Hotel in Liverpool for £13.8m. Chairman Kwek Leng Beng reports ‘this unique acquisition, which will be supported by M&C’s existing management infrastructure, further expands the Group’s hotel portfolio to one of the leading leisure and business destinations in the UK. The city is undergoing an economic regeneration and we are proud to be a part of that.’
• Last minute hotel searches in London are reported to have almost trebled during last week’s Tube strike
• Trade journal TTG reports that International Villas is going into liquidation after changes to its tax status.
• Kuoni has reported that it has sold its Indian travel business + tour operator in Hong Kong to Canadian group Fairfax. CEO Peter Meier reports ‘with the sale of the tour operating activities in India and Hong Kong, we have completed the sale of the outbound business as announced in January. I’m very pleased that we found forward-looking solutions for all the units.’
• Bwin has confirmed that it ‘is working closely with GVC + its advisers’ to formulate an improved bid for Bwin. It cautions ‘there can be no certainty that an offer will be made by GVC for bwin.party’ and says ‘the bwin.party Board will update shareholders in due course.’
• Games co Zynga has reported a 30% y-o-y rise in Q2 revenues. User numbers continued to decline
Finance & Markets:
• World markets: UK down on Friday, ditto Europe. US down on Friday also and Asia mostly lower in Mon trading
• Oil lower at around $48.25 per barrel
• German trade surplus rises to €24bn in June against €19.5bn surplus in May
• EU officials have suggested that Greece should be able to draft a deal on a 3rd bailout by Tuesday, possibly receive first cash 20 August
• UK trade deficit almost doubled in June to £1.6bn from £885m in May per ONS numbers. Physical deficit £9.2bn, services surplus £7.6bn
• US added 215k jobs in July per US Bureau of Labor Statistics. Analysts suggest such growth makes a Sept rate rise somewhat more likely. The rate of unemployment last month remained unchanged at 5.3%
• China’s inflation rate rose to 1.6% in July, up from 1.4% in June – but still some way short of the official target of 3%
Leisure – Licensed Retail Index – Major Movers
LRI underperformed last week down 0.67% while the All-Share was up 0.26% as the resource producers rallied somewhat from recent lows.
Merlin was down another 3.37%. The stock has been weaker since the group last updated the market last month and indicated that the accident at Alton Towers in June would impact profits.
SSP Group had a bad week, down 3.68%. The group recently purchased a 30 site strong German bakery brand.
Enterprise Inns’ Q3 trading update was saw the group’s shares finish the week up 3.82% to 117p. The group’s shares were close to the 130p mark at the start of the month, however, suggesting the market is still uncertain re the MRO and the pubco’s plans to change up its estate. Punch Tavern’s shares reflected this uncertain sentiment this week, ending down 2.81%. The latter group has yet to update on strategy.
Cineworld extended last week’s gains, rising a further 2.52% ahead of the group’s half year numbers this week. Most of this year’s summer blockbusters have hit the screens already this year, but cinema operators still have the latest James Bond film as well as new Hunger Games and Star Wars films to look forward to later in the year.
Will Brumby – email@example.com
This was produced for distribution Friday afternoon: 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:
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 (see chart in Friday email)
• 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 (see chart in Friday email)
o 2) one month doesn’t make a trend (see chart in Friday email)
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.