Langton Capital – 2015-08-20 – Rank, Stock Spirits, Sportech, interest rates & other:
A Day in the Life:Follow us on Twitter at either @langtoncapital or @brumbymark. So Hull City are top of the Championship. Shame it’s not the division above but, given what a competitive division the Championship is, around three quarters of the team in it have been in the Premiership at some point in the recent past, I think we’d have taken two wins and a draw from our first three matches if it had been offered to us pre-season. So, rather than make the statement that we’ll have secured promotion before Christmas, I think I’d better just say that we’ve made a good start. On to the news: The News:Pub, Restaurant & Drinks Producer News: • Stock Spirits H1 numbers. Revenues €108m v €138m last year. Operating profit €5.2m v €23.2m. Basic EPS down to 0.125c v 8.4c last year • Stock Spirits says ‘ongoing market disruption in Poland [led] to very poor Q1’ but group is seeing ‘much improved Q2’. It says other markets are performing in line with expectations. CEO Chris Heath says ‘the disruption in the supply chain and aggressive competitor pricing in Poland following the excise tax increase in January 2014, resulted in a very poor first quarter for the Group.’ He goes on ‘trading in Poland improved significantly in the second quarter, but not enough to fully offset the poor first quarter. All other markets have traded in line with our expectations.’ • Stock Spirits says due to ‘continuing aggressive competitor pricing + erratic customer ordering patterns’ sees FY EBITDA of €60m to €68m. Group adds ‘having come through a very difficult period, we have put the building blocks in place to ensure that the Group is well placed to capitalise on the opportunities available in the Central and Eastern European region and the improved trading conditions we experienced in Q2 have continued into the start of Q3. We continue to view the future with confidence and the Board is therefore pleased to announce the payment of an interim dividend of €0.0125 per share to shareholders.’ • Customers, where are they? Still quiet in The City. Pubs pretty empty, plenty of room in the restaurants. Presumably the beaches are packed • Report from Public Health England has concluded that e-cigs are 95% safer, presumably cause 5% of the damage, of ordinary cigs. It says around 5% of adults in UK use e-cigs. The body went on to say that users of e-cigs do not move on to tobacco. It says ‘in a nutshell, best estimates show e-cigarettes are 95% less harmful to your health than normal cigarettes, and when supported by a smoking cessation service, help most smokers to quit tobacco altogether.’ It concludes ‘smokers who have tried other methods of quitting without success could be encouraged to try e-cigs to stop smoking and stop smoking services should support smokers using e-cigs to quit by offering them behavioural support.’ • Kirin reported to be set to buy 55% stake in Myanmar Brewery from Singapore-based co Fraser + Neave for $560m. • Survey by Open Table suggests average Briton spends £4,100 on eating out per annum, goes out 1.5x per week • Turnover at Henley-based brewer and pub operator Brakspear increased by around 12% to £19.9m in its 2014 financial year. Operating profit before the cost of the lease buy back, increased by 8% to £5.8m, and profit before tax and exceptional items was up by 20% to £4.2m. A strong performance from the company’s managed house division, which has grown to five sites with turnover up from £2.1m to £3.6m, helped drive the company’s sales. The group sold seven pubs in the period and invested £3m in its estate. • More from Brakspear: Chief executive Tom Davies said of the group’s outlook: ‘Acquisition of new sites for both the tenanted & leased estate, and the managed house division, remains high on the Brakspear agenda. Thanks to our healthy financial situation, we’re well placed to act quickly as and when we see pubs that will enhance our estate.’ • Budget chain Budgens is happy with the results of its trialling of more upmarket stores comparable to M&S Food and Waitrose. Brand Director, Mike Baker said ‘Our new proposition is all about making grocery shopping more interesting whilst highlighting the Budgens difference – supporting smaller suppliers, offering local seasonal food alongside the big brands.’ • Reports say Association of Convenience Stores chairman Mike Greene is involved in the possible purchase of Morrisons’ M Local stores. Greene has held senior positions at Spar and McColls. • The government will ‘robustly enforce’ the new living wage and the HMRC will have an extra £13.2m to investigate offenders, reports the PMA. Wages are set to grow to £7.20 for workers aged 25 and over from April next year before increasing to £9 by 2020. • Shares in Carlsberg have fallen after the Danish brewer lowered its full year forecasts due to continuing ‘market decline in Eastern Europe.’ Ukrainian sales fell by around 17% ‘as a result of the deteriorating economic climate as well as significant price increases’ while Russia sales were down 9%. • Carlsberg reported a 23% fall in adjusted net profit to 1.73bn kroner (£163m) for the three months to June and the firm admitted it has seen a decline in demand for its beers in many parts of Eastern Europe in the first six months of the year. The firm has closed two breweries in Russia. Leisure Travel: • Logistics and distribution firm John Menzies first half profit has slumped 58.6% to £5.8m following the loss of key airport contracts. • Turkish Airlines half year operating profit has grown 21% to $238m on the back of an 8.3% revenue rise to $4.79bn. Net profit was up 4.6% to $406 million due to the airline’s ‘diversified debt structure and dynamic risk management strategies’. • Thomas Cook and Brand USA have extended their partnership with the launch of a new campaign to drive visitors to the US. The announcement coincides with Thomas Cook’s announcement of five new direct flights to the United States from various regional UK airports including Manchester, Glasgow and Stansted, flying to Las Vegas, New York, Orlando, Boston, Miami, and Los Angeles on a fleet of newly refurbished Airbus A330s. • The Civil Aviation Authority is claiming victory after Jet2, Wizz Air and others agreed to offer delayed customers better support. Other Leisure: • Rank reports FY numbers, says that ‘strong progress [has been] made in 2014/15’. Revenues +4% at £738m, PBT +19% at £74m. • Rank reports EPS +18% at 14.6p, full year dividend +24% at 5.6p. Operating profits +16% ‘with all brands in growth’. CEO Henry Birch reports ‘I am delighted to be announcing a significant improvement in our performance with a strong set of results and profit growth across all our brands.’ He says ‘alongside our strong operating performance, we have made good progress on our strategic objectives that we outlined 12 months ago, and we have a clear strategy for delivering sustainable profitable growth across all our brands.’ • Rank CEO says is ‘particularly pleased that the strong digital growth we reported at our interims continues’. Henry Birch says ‘we remain on track to implement a new digital platform in early 2016.’ Grosvenor Casinos revenues are +8% on a LfL basis and ‘Mecca has had a significantly improved year with like-for-like revenues up 2% and operating profit up 16%, driven by good digital growth, stable like-for-like revenues in our venues and lower operating costs benefiting from a reduction in bingo duty.’ Spain has also had a better year’. • Rank’s current trading ‘has continued in line with the trends seen in 2014/15 and is in line with management’s expectations’ • Ladbrokes has reported a part of Gala Coral’s Q3 results saying Coral Retail EBITDA was down 2%, OTC was 1% lower + machines +2% • Pool betting operator Sportech profit shot up from £0.8 to £7.9m for the six months to 30 June following the sale of its share in SNG. However revenue fell to £51.0m (2014: £52.6m) and EBITDA reduced to £11.0m (2014: £12.0m), while adjusted profit before tax was down to £5.4m (2014: £6.3m) and profit after tax was £4.1m (2014: £69.0m). The company had 2.1p of adjusted earnings per share compared to 2.4p the same period last year and net debt was around level at £63.3m (31 December 2014: £63.8m). • The proposed bid from Contagious Gaming remains ‘subject to due diligence, Contagious Gaming raising suitable financing and Contagious Gaming receiving a significant level of support for the proposal from Sportech shareholders’. Any offer would be expected to value the company at more than Sportech’s share price of 62.63p on 13 August. Shares in the company currently trade on 69.5p. Finance & Markets: • US Fed says conditions for rate rise “were approaching” when they met last month, minutes suggest. The Fed nonetheless held off. • Markit has 78% of UK households expecting rate rise in 12 months. Whether they are doing anything about it or not remains to be seen. • Chinese shares rallied yesterday (Weds) after being down 5% at one point after the central bank stepped in to calm investors. • World markets. All down (including China in Thurs trading). UK now at 7mth low. • Oil price down a little further, Brent trading at $46.90 per barrel, West Texas Intermediate fell more • Oil prices could stay low for years to come after more than halving in value over the past year, according to derivatives markets. • German MPs have voted heavily in favour of a third bailout deal for Greece. German Finance Minister Wolfgang Schaeuble earlier warned MPs that it would be ‘irresponsible’ to oppose the €86bn (£61bn) package. Retail Roundup from Nick Bubb:WH Smith: The WH Smith pre-close trading update today (for y/e August) will probably get more focus than usual, given the recent row about Airport VAT policies, and, needless to say, there is no mention of anything so tawdry, but shareholders will be pleased to hear that summer trading has been strong and that full-year PBT is going to be slightly above market expectations. This reflects the growth of the Travel Division and the increase in airport passenger numbers, but, interestingly, WH Smith also point to a slight increase in H2 sales in the much-maligned High Street Division, “driven by some favourable publishing in books”. Planet ONS Watch: In the real world, July was another tough month for Food retailers and another pretty strong month for Non-Food retailers, but at 9.30am today we will find out what July was like overall on that parallel world, the “Planet ONS”, via the ONS Retail Sales figures for July…For what it’s worth, Capital Economics have pencilled in a fairly modest 0.2% month-on-month increase in seasonally adjusted sales volume in July, which would put the year-on-year growth rate at 4.2%. Bank Holiday Watch: This time last year we’d all be looking forward to the upcoming long weekend, but the Bank Holiday this year is the latest that it can be, on Monday Aug 31st, so there is well over a week to go…which, by all accounts, is holding back High Street “back to skool” related trade, so it will be interesting to hear tomorrow what John Lewis and BDO have to say about the impact on last week’s Fashion sales figures… Nick Bubb – nicholas_bubb@hotmail.com Wednesday Wrap:This was produced for distribution yesterday 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: 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. |
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