Langton Capital – 2015-08-25 – Daily Wrap: Pizza festivals, tenanted pubs, Tube strikes, 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:
London’s first Pizza Festival:
• Planned for September in Borough Market it tends to suggest to us that there’s still a case to be made for the better mousetrap.
• Because entrepreneurs may feel that they need to pioneer Nigerian waffles or Eskimo tapas but the three majors (chicken, burgers, pizza) still have legs.
• Just ask Soho House, Meat Liquor or Franca Manca.
• You don’t need to reinvent the wheel. Just knock out the kinks and, if incumbents become fat, lazy, greedy, entitled, etc. then so much the better.
• Corporate finance house Sapient advised on Punch’s Monday disposal of 158 non-core pubs to New River Retail.
• Punch says that the marketing of the units ‘led to significant interest and a robust auction.’
• Sapient adds ‘the sale price of 7.3x pub EBIT is the highest price since 2007 for non-core tenanted pubs.’
• It adds ‘prices for tenanted pubs are rising, driven in part by new entrants attracted to the higher yields that pubs generate compared to other property assets’ and concludes ‘we expect further activity in light of the MRO legislation.’
• Certainly the bar is rising. What used to be non-core units pre-credit crunch would have been utterly dire.
• These have long-since gone, everything is relative and bottom end pubs just aren’t what they used to be.
• Enterprise has updated on strategy and Punch will comment on Q4 trading on 1 Sept.
• So the Tube strikes have been pushed into a back-to-work week.
• More Tube staff will therefore take a day off (that they had not already booked) and more commuters will be impacted.
• It’s good that nothing’s going to disrupt this week but, if the City’s anything to go by, there are fewer workers around to breathe a sigh of relief.
• If the strike had taken place this week then tourists (the odd family from Michigan and guy from Newcastle bringing his grandkids down) would have been impacted and they’re presumably in London too infrequently to bother putting pressure on Tube bosses to sort the problem out.
• We’ve previously had feedback suggesting that strike days coincided with c15% falls in trade in Zones 1 and 2 and this seems reasonable though a bit light, if anything.
• Suburban pubs may benefit but, overall, the strikes are bad news for the Capital where, in the hotel industry at least, the market is already past its best.
Slowdown, costs, interest rates & currency movements:
• There are interrelationships between all of the above.
• If China slows, commodity prices should fall. If that happens, inflationary pressures should abate. Hence interest rate rises (in the US & UK at least) should be postponed & currencies should react accordingly.
• However, whilst the causality may be understood in theory, the above doesn’t often work through as anticipated.
• Only this time it has hence, in a mangled version of what Hannibal Smith used to say, it’s great when a plan comes together.
The consumer in light of the above:
• Everything is lagged, confidence (or the lack of it) can make a mockery of theory and you’re often left comparing apples with oranges.
• But, if the above economics come to pass (weaker Sterling, no interest rate rises, benign cost environment), is the consumer better off or worse off?
• Well that depends.
• Savers will lose on what could have been a boost to their incomes. But, whilst there are more savers than there are borrowers, interest rate rises usually depress spending (unless there’s some sort of mania going on – and then the 16th or 17th rate rise, as Mr Greenspan found out in 2001, can set things tumbling down).
• Hence the absence (or the delaying) of a rate rise should help to buoy spending.
• The fact that lower rates means a weaker Sterling, higher import costs, costlier holidays overseas etc., is a problem that can be kicked into the long grass.
Random information, hopefully not all of it useless (re most leisure operators etc.):
• World markets: Much more sanguine today about what’s going on in China – but has anything really changed? Answer: no.
• Interestingly the Dow moved through a 1,000 point range in yesterday’s trade.
• Oil price also bouncing a little.
• Unsafe drinking is not only the preserve of the young.
• Barclaycard says that holiday spending is up. What it means is that spending on plastic is up. The one probably follows the other, but it need not.
We’re so 21st Century, this morning’s Tweets (diff. font size denotes importance):
1. The Allegra World Coffee Portal has suggested that speciality coffee market set to double in value by 2020
2. Some 84% of Brits do not think NHS should treat alcoholics free-of-charge.
3. King’s College London reports that around a fifth of people over 65 drink to “unsafe levels” stated as 21 units for men, 14 for women
4. Peach has reported that London’s Borough Market is to host the capital’s first ever Pizza Festival in Sept, showcasing artisanal vendors
5. Sapient, which advised Punch on sale of 158 pubs, reports that the multiple achieved is the highest since 2007 for non-core tenanted pubs
6. Study commissioned by Barclaycard has suggested overall number of holiday bookings is +10.3% this year. Hotel spend +7.8%
7. Tube strikes in London planned for Wed + Fri have been put off until the second full week of September (when holidaymakers are back)
8. William Hill has announced the appointment of Philip Bowcock as CFO. Mr Bowcock, late of Cineworld, replaces Neil Cooper
9. World markets: Bloody day yesterday with all markets down, London for 10th straight trading session. Bloomberg commodities hit 16yr low
a. World markets: Oils, miners badly hit but US more sanguine than Europe. China down 6% again (Tues) but rest of Far East up in Tues trade
b. Starbucks CEO Howard Schultz has told staff to be kinder to customers today as they (the latter) may have had a bad day on markets
c. Brent crude bouncing a little in Tues trade, now changing hands at c$43.40 per barrel, up from Mon’s 6yr lows
d. Sterling + US$ weak yesterday on reduced ‘hopes’ that interest rates would rise in the near term
e. BlackRock fixed income CIO Rick Rieder says he sees window US rate rise in September is now closing. Time is moving on