Langton Capital – 2015-08-26 – Daily Wrap: Leisure Tracker, betting mergers & 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:
Greene King Leisure Tracker:
• See morning email for more detail. The Tracker is interesting on a number of levels the Tracker generally:
o Comments on July weather as bad. It wasn’t wonderful but it started with the hottest few days of 2015.
o It highlights that food is still outperforming wet sales. This has been a trend for some time – but there will have been some lapping of last year’s World Cup, which boosted wet and depressed food sales in 2015.
o Tracker says spend is ‘resilient’ but it concedes ‘recent figures show wage growth to have slowed + unemployment to have increased in 3mths to June’.
o It says this may ‘prove to be indicative of a change in momentum in Britain’s economic recovery’ and concedes ‘the broadly upward trajectory in leisure spending seen over the last year may start to become more subdued.’
o Events are still helpful. The Rugby World Cup should boost pub spending.
o GNK reports that spending in London & the South East fell by 2% in July v the same month last year.
o It says ‘despite a fall in spend among households in London and the South East, the trend in leisure spending remains largely positive in both areas.’ However, with virtually no forward visibility, trends are perhaps not apparent until they are in the past.
o Re London, GNK says ‘it will be interesting to see what impact, if any, the introduction of a 24 hour tube service has on the capital’s late night leisure economy following its launch in September.’ Agreed but it will probably be 1) marginal and 2) confined to a modest number of Central London locations.
Oil price fails to rally, consumers will benefit:
• Lower oil prices are good for the consumer and, as transport and heating costs impact most companies, they are good for the corporate sector (excluding oil companies) as well.
• Hence it is something of a relief to see that the oil price hasn’t immediately rebounded $6 or $7 on the back of somewhat more stable markets.
• But we suppose that is realistic as, whichever way you slice it, China is slowing down and some oil inventory numbers are coming out in the US this afternoon, the betting being that they will show there’s no shortage of oil out there.
• Added to which Iran may come back on stream and the Saudis, Russians and others need to pump in order to spend and we could have low prices with us for some time
• This will put more money into consumers’ pockets, it will restrain commodity price increases and put downward pressure on prices across the economies in general; what’s not to like?
Deflationary fears not going away:
• The ECB is said to be still on deflation-watch and, with oil prices remaining low, one can see why.
• But the authorities aren’t panicking yet. They see deflation as currently a commodity-issue and note that, often, with regard to commodities, what goes down may later go up.
• They would only panic (I’m sure they wouldn’t use that word) if deflation became baked in via pay decreases and the like.
• And here, with the Living Wage set to push up labour costs in the UK, one can say that either 1) the issue is being fortuitously headed off or 2) the authorities got their panicking in early.
Random information, hopefully not all of it useless (re most leisure operators etc.):
• The price of gold hasn’t shot up, which says something at least about how some investors are viewing the current ‘crisis’.
• On a less-positive note, equity markets are lacking anything of a follow through.
• For the record, China lost 22% in 4dys. The UK market fell for 10 straight days and yesterday’s rally in the UK was the largest for 4yrs.
• Stock valuations, in some areas at least, are currently attractive. A basket of GSK, VOD, RDSA and MARS (amongst others) would yield you around 5%. Sounds pretty interesting if you’ve got money in the bank earning 0.5% but dividends, admittedly, can go down as well as up.
• Fed, observers et al now backing away from Sept 15 US interest rate rise. UK rise could be Q2 or Q3 next year. Would take quite a rally to bring UK expectations back to January 2016.
• Airbnb now becoming something of a real threat? Will be interesting to see if Whitbread stoops to comment on it in its 8 Sept trading update.
• Betting mergers all the rage. Gala Coral / Ladbrokes, Bwin / GVC and now Paddy Power & Betfair. Is this indicative of growth opportunities or of an industry that sees itself having to derive growth from mergers against an increasingly hostile regulatory environment?
We’re so 21st Century, this morning’s Tweets (diff. font size denotes importance):
1. Greene King Leisure Tracker reports 2% y-o-y growth in spend in month to July, says wet sales down 4%
a. GNK says ‘poor weather [in later July] failed to dampen the appetite for Eating Out among British households’, drink spend down
b. GNK looking forward to Rugby World Cup, says events ‘can galvanise the British public’, encourage pub visits etc
c. GNK says ‘recent figures show wage growth to have slowed + unemployment to have increased in 3mths to June’
d. GNK suggests ‘households in London + South East reduced leisure spending by £4 (2%) while elsewhere household spend increased by £7 (4%)’
2. Meat Liquor has secured a 2nd site in Singapore with more to open pre year end reports M+C
3. Kantar Worldpanel reports only Sainsbury increased sales across big 4 in quarter to August. Overall prices down 1.7%
4. Airbnb is reported to have signed up 500 companies to its business travel program within 24hrs of launch
5. Paddy Power + Betfair announce possible merger, say they have agreed terms in principle.
a. PAP + BET say merger ‘would create one of the world’s largest public online betting and gaming companies by revenue’
b. PAP to own 52% of enlarged group, Betfair 48%. PAP to pay €80m special dividend, Gary McGann (PAP) Chair, Betfair’s Breon Corcoran CEO
c. PAP H1 numbers, operating profit +33% or 68% under constant currencies + before new taxes, product fees
d. PAP H1: Net revenues +25%, diluted EPS +31%, H1 dividend +20% at 60c. Says making ‘substantial strategic progress’.
e. PAP says 2015 results will ‘be ahead of 2014 and the consensus market forecast.’
f. Betfair reports on Q1, says revenues +15% against tough World Cup quarter last year. EBITDA +10% at £41m
6. General market rebound. UK + Europe strongly higher yesterday but US down. Far East mostly up in Weds trade
a. China cuts main interest rate by 25bps to 4.6% in order to boost growth. Markets positive
b. Oil prices down a little, major rally fails (yet) to materialise with Brent trading at around $43.10 per barrel
c. US reports consumer confidence hit 7mth high in August. Home sales also rebound, will confuse interest rate watchers
d. German business morale rose in August (pre events in China), outlook (ex-China, which is a big ex) looks good