Langton Capital – 2015-08-19 – Daily Wrap: Interest rates, holiday companies, soggy 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:
Interest rises ‘quite soon’:
• So what does ‘quite soon’ mean?
• Who knows and, with the Fed yet to act, the Bank may feel that it can push the decision into 2016 and watch what happens to US markets, asset prices and the like into the bargain.
• And why not?
• However, with ‘core’ CPI now at 1.2% (a 5mth high)it’s probably as well to remember that the Bank will be looking for an excuse to hang an interest rate rise on – and firmer CPI numbers, perhaps in Jan or Feb next year, could be the excuse de jour.
• So what will it mean?
• Well the cost of spot-market debt will rise. But many consumers and businesses for that matter have fixed rate debt and, though the price at which these loans can be rolled over will increase, this should have been priced into 5yr deals etc. gradually over the recent past.
• Savers, many of whom are not on fixed rate deals, could feel a more immediate, though smaller, benefit.
• The grey market could be somewhat better off, many others less so.
Thomas Cook, Tunisia, Thailand etc.:
• Thomas Cook has cancelled Tunisia flights until at least February next year.
• The group (and TUI) have yet to comment on plans re Thailand.
• Disruption is almost never good, is rarely neutral and is most often negative for margins.
• Thomas Cook has a number of strengths (Fosun deal, attractive markets, less risk of price wars, conservative (now) management etc.) but there is a degree of uncertainty with regard to short term trading.
• This has been reflected in the group’s shares, which are now trading at around 110p – having been as high as 160p only 3mths ago.
• On consensus estimates, the group is set to earn around 8.6p this year (still a recovery year) and a more relevant 12p in FY16.
• Hence the group’s shares trade on less than 10x earnings and, as such, would appear to offer good value
• The group will next update on trading towards the end of its financial year, circa late September
Random information, hopefully not all of it useless (re most leisure operators etc.):
• Markets pretty darned yucky. That’s a technical phrase.
• Markets also pretty darned quiet. Volumes running at around two thirds of 90dy average.
• Soybean prices now extremely weak. May act as lead indicator for other carbohydrates. Sugar ditto. Latter is getting a bad press, probably deservedly, re health. Outlook for volume growth may therefore be somewhat less attractive.
• Copper is at a six year low, miners still weak. There will come a point where it’s not worth digging the stuff out of the ground. Look for stories re the mothballing of projects & even entire mines. They can’t be long in coming.
• Walmart numbers miss expectations, quite a big deal.
• ASDA says seeing signs of green shoots Q3. Is it that ‘they would say that, wouldn’t they?’ or are things picking up. Feels a bit risky amidst red screens but we’re inclined to the latter view.
• WH Smith’s update tomorrow will give us something of a steer as to what’s going on across the UK’s travel hubs.
We’re so 21st Century, this morning’s Tweets (diff. font size denotes importance):
1. Constellation brands creates specialist ventures op to invest in new liquor, beer + wine companies, takes stake in Crafthouse Cocktails
2. M+C reports Albert’s Schloss concept could roll out to major UK cities. Revolution Bars’ founders Roy Ellis + Neil Macleod have 50% stake
3. Asda sales dropped 4.7% in its second quarter and is feeling the effects of the ‘worst storm in retail history’
a. Asda slumps but says ‘there are green shoots coming in the third quarter.’
4. McColl’s has extended its £85m revolving credit facility until 2020 as the convenience and newsagent group continues to expand.
5. Thomas Cook has cancelled bookings to Tunisia until next February after the country’s state of emergency was extended for 2mths
6. IAG reports offer for Aer Lingus is now wholly unconditional. IAG CEO Willie Walsh reports ‘we’d like to welcome Aer Lingus into IAG’
7. Air Partner buys aviation safety consultant Baines Simmons for £6m and the move is expected to be immediately earnings enhancing.
8. Tourism is now the UK’s third largest service export, contributing some £60bn to the UK economy in 2014.
9. Gatwick boss Stewart Wingate has attacked the Airport Commission’s decision to recommend Heathrow for a new runway
10. CPI inflation in July was 0.1% from 0% in June as a result of a smaller fall in clothing prices. The rise was muted by food + beverage. Prices
11. Pound rises to 7.5yr high on benign inflation data + ‘hopes’ of rate rise. MPC member Prof David Miles has said that interest rates in the UK will rise “pretty soon’
a. MPC member says rate rise will be ‘sign of health’, adds ‘new normal’ to be 2.5% to 3%, “materially lower” than historically.
12. UK house prices blip up per ONS. Says annual rate rose to 5.7% in year to June up from 5.6% in year to May