Langton Capital – 2015-08-24 – Daily Wrap: Oil prices, China fears, interest rates, Punch Taverns & 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:
• The title of today’s wrap is virtually identical to that on Friday and that’s not a mistake
• Because, perhaps Punch Taverns’ announcement and the disintegration of Syriza aside, today’s worries are pretty much the same as those we had last week
Punch disposal to NewRiver Retail:
• On any other day, this might have received a supportive press.
• But China is hogging the headlines & Punch’s shares, last seen, were actually off a penny or two on what has to be a sensible + incremental strategic deal
• The disposal is on a historic EBIT multiple of 7.3x and are being sold at a small (£1m) premium to asset value.
• We are awaiting news on the Matthew Clark sale, need a strategy update from new CEO Duncan Garrood and have a trading update from the company (Q4) coming on 1 September
China & Global Markets:
• We don’t want to turn this into a hard-core economics blog but, at the same time, it’s not possible to ignore what’s going on in China (and at the Fed)
• China has to manage a slowdown in its annual rate of growth from >10% via its current 7% to perhaps 3% to 4% over the medium term
• And it does not want to do this via negative numbers but, as I’m sure Lewis Hamilton would agree, slowing a car from 200mph to nearer zero going into a corner is a skill that not all possess
• And China is more of a million-ton super-tanker than it is a super-car and global markets are understandably somewhat concerned
• So this is a seminal period
• The emergence of China as a global economic superpower has dominated finance for two decades and we may be moving into a new phase
• And, disgraceful though it is as share prices are meant to anticipate changes, commodity share prices have mirrored Bloomberg’s commodity index, which is now trading at 16yr lows
• The Shanghai Comp was down 8.5% overnight & all 2015 gains have now been erased – this could be ‘healthy’ but it is also worrisome
Oil Prices, Inflation & Interest Rates:
• Oil is flat on its back – see comments on China & commodities above.
• This is deflationary.
• The Fed and the Bank of England are mandated to combat inflation.
• There is less of the latter around so interest rate rises may be shunted into 2015 in the case of the US and well-into 2015 in the case of the UK
Whitbread & AirBNB:
• We get a lot of our ideas from clients.
• Many simply add to the store of knowledge (a.k.a. gossip) but some are then repackaged & branded Langton.
• Nearly a year ago, it was suggested to us that AirBNB would move into the business end of the market & would become more of a threat to mid and low end business-room suppliers (i.e. Whitbread).
• We tucked this away as interesting but premature and, judging by today’s stories, it is still the former but no longer the latter.
Tips & Gratuities – a few bad apples?
• See earlier email for the fruits of various investigative journalists’ digging.
• Keeping tips for the company, using them to make up salaries to the minimum wage or charging waiters for the privilege of waiting tables do not resonate with a (reasonably) fair-minded consumer.
• But such practices are not the norm. Many waiters, particularly in London, earn more than £15 per hour and not many of them, on the weight of recent evidence, look set to take strike action against their employers.
Random information, hopefully not all of it useless (re most leisure operators etc.):
• A paler version of what happened in the Far East overnight, European markets are down between 2% and 3%
• Lucozade pushing low-sugar drinks; a bit overdue, part of an on-going, health-inspired & beneficial trend but not good for the sugar price longer term
• New entrants: See comments on ex-Real Pubs entrepreneurs Nick Pring & Malcolm Heap above. Increased capacity can be a problem – but often more for incumbents than for the new entrants themselves. With the likes of Franca Manca growing rapidly, Pizza Express, ASK, Zizzi and Prezzo are likely to face more competition rather than less going forward.
• Talk (again) of 100p per litre petrol will put money into consumers’ pockets. If it happens.
• Good UK economic data (budget surplus in July, good prospects for GDP growth) utterly overwhelmed by China fears.
• Greece? Not gone away but likewise overwhelmed by China. Rebels meet reality, wise up, splinter & become rebels again
We’re so 21st Century, this morning’s Tweets (diff. font size denotes importance):
1. Punch sells 158 non-core pubs to NewRiver Retail for £53.5m, historic EBITDA multiple of 7.3x. Says it is ‘consistent with Punch’s strategy’
a. Punch still aims to ‘sell the non-core estate at a rate of approximately 200 pubs per year’ + has just realised c£340k per pub
b. Punch disposal ‘is above book value + significantly ahead of the average proceeds achieved for previous non-core disposals.’
2. M+C reports Urban Pubs + Bars, by Realpubs founders Nick Pring + Malcom Heap, is to launch new pizza concept Hackney
3. Lucozade has added Reduced Sugar Tropical Fusion to its portfolio of energy drinks as sugar continues to retrench
4. High street petrol prices heading lower as UK’s 4 major supermarkets announce price cuts to around 109.7p per litre
5. JD Wetherspoon remains best known + most visited pub brand in UK per M+C Allegra Foodservice report
6. Cote denies it keeps all of the 12.5% service charge added to customer bills but admits it retains some to make up to minimum wage
a. Observer keeps tipping row going saying Las Iguanas ‘forces waiters to pay to work,’ as they have to pay back 3% of sales generated
7. Telegraph reports Uber plans to IPO in H1 2017 as bookings have quadrupled this year, should hit $10.8bn this year
8. 1,000 firms reported to have joined Airbnb as the booking portal gears up to service business travel
a. Airbnb reported to be targeting China after seeing outbound travel grow 700% in Chines market over last year.
9. TUI is not to fly to Tunisia until at least March next year. Thomas Cook has said it will not fly until at least February
10. Bwin confirms that it is still in discussions with GVC re bid. Says will update ‘as + when appropriate’ + will update on trading Friday
11. IMF says China slowdown is not a crisis but rather a ‘necessary’ adjustment. IMF still believes China will grow 6.8% this year
a. Caixin/Markit survey suggests factory activity in China shrank at fastest rate in 6yrs in August. PMI of 47.1 v 47.8 in July
12. Brent oil down over weekend, now trading at $42.30 per barrel. Trading at multi-year lows + threatening to fall further
13. UK public finances in surplus of £1.3bn in July (a month of traditionally high tax receipts) per ONS. Is first July surplus since 2012
14. CBI reports UK set to enjoy “decent quarterly GDP growth” of c2.6% over the current year as a whole up from earlier c2.5% estimates