A Day in the Life:

Follow us on Twitter at either @langtoncapital or @brumbymark.

Langton is not in the office this week but should be able to keep the email going before things get back to normal next week. The Day in the Life might be somewhat sporadic and there will be no Daily Wrap.

The News:

Pub, Restaurant & Drinks Producer News:

• Punch updates on FY trading (to 22 Aug), says profits are in line with management expectations, EBITDA £193m to £200m

• Punch sees ‘positive like-for-like trends in net income; core estate net income up 0.3%’ + ‘disposal proceeds ahead of guidance at £89m’

• Punch disposals ahead of book value, multiple of 26x, debt down £513m in the year + down £102m since Oct 14 refinancing. It says its property estate has been externally valued at £2,097 million; £691 million in excess of nominal net debt.

• Punch average profit per pub +4% as quality improves on disposals. Core estate now 95% of expected 2016 EBITDA. CEO Duncan Garrood reports ‘the business has ended the year with a solid set of results, in line with our expectations. The business has clear plans for further debt reduction and will benefit from being able to focus more resources on the higher quality core pub estate.’ He adds ‘since joining Punch on 15 June I am excited by the opportunities I see in the business. I look forward to updating the market on our plans when we present our full set of results on 12 November.’

• Greene King reports exchange of contracts for sale of 16 pubs required for disposal by Competition + Markets Authority post Spirit deal. The group says ‘we expect completion to take place by early October 2015’ and CEO Rooney Anand reports post the sale ‘we are therefore close to completing the remedial actions required of us to receive unconditional CMA approval for the acquisition of Spirit Pub Company. Once the transactions complete, there will be no further obligations on Greene King’ and he continues ‘although the CMA process was intensive, we reached a sensible conclusion. The fact that we only had to dispose of 16 pubs, out of a combined total of 3,100, highlights the compelling strategic rationale for the deal, thus avoiding unwanted business distraction and minimising the lost profit from any disposals.’ Mr Anand concludes ‘we are
moving ahead with the integration of our two businesses and will update on progress in December at our interim results.’

• HMG to look into tipping across restaurant sector after a number of high street operators were accused of keeping service charges. Business Secretary Sajid Javid said ‘I’ve ordered an immediate investigation to look at the evidence and consider the views of employees, customers and the industry to see how we can deal with the abuse of tipping.’

• ALMR has written to Mr Javid (business secretary) saying that the current system of tipping can work well. It says ‘this has got lost in the media debate’. In an open letter, the ALMR writes ‘we very much share your view that tips should be passed on to the staff who have earned them, and this has formed the central part of our advice to members on this issue. However, we are concerned that there has been much misleading, emotive and incorrect comment in the media which does not reflect current industry practice’.

• Research by UHY Hacker Young shows 24% rise in number of new breweries reports Propel

• Casual Dining Group, the Café Rouge + Bella Italia operator that recently bought Las Iguanas, has bought La Tasca

• M+C reports Red Oak Taverns has bought the 146-strong GRS tenanted pub portfolio for around £35m

• M+C Allegra reports that the value of the Food To Go market has increased by 7% in the past year with visit numbers up

• SAB Miller is reported by The Sunday Times to have bolstered its bid defences on further concerns that AB InBev may make an approach

• Contactless payment limit moves from £20 to £30 today

• Former Tesco CEO Philip Clarke is to be interviewed under caution as part of the SFO investigation into Tesco accounting

Holidays & Leisure Travel:

• Flights to Spain could be disrupted this week by industrial action by airport ground staff. Langton hopes not

• Midcounties Co-op travel GM Alistair Rowland has said that the lack of affordable overseas Lates has boosted staycations

• STR Global has reported that London hotel rates will rise in H2 2015. Average Daily Rate was up by 4.3% in July

• An App named Arro, designed to allow New York taxi drivers to compete with Uber, is set to launch in next few weeks

Other Leisure:

• Vue is said to be considering a £600 million bid for Odeon

• Bwin is reported to be ‘set to jilt’ 888 as GVC terms have been improved

• Facebook hit 1 billion daily users for first time last week

Finance & Markets:

• UK Q2 growth was left unchanged at 0.7% per ONS numbers, up on the 0.4% reported in Q2

• B of England’s Mark Carney said over the weekend that any China slowdown, for now, did not change its stance on interest rates. These, the bookies would have us believe, are set to rise early next year.

• I World markets: UK up on Friday but then missed a day. Europe down yesterday, ditto the US and Far East down in Tues trading

• Oil price up sharply over long weekend, now trading at $52.70 per barrel

• Official PMI in China shows factory activity contracted at its fastest pace in three years in August, hit 49.7 v 50.0 in July

• MF has now said that the Greek debt deal should be workable. It had earlier argued for a write-down

• Brazil has recorded two quarters of negative growth + is now officially in recession. Q1 down 0.7%, Q2 down 1.9%

• Indian economy said to have grown at an annual 7% in Q2

• Land Registry says number of homes sold has fallen by 15% in May compared with last year. Values are still rising, however

Retail Roundup from Nick Bubb:

Saturday Press:
The weak Jimmy Choo results on Friday provided lots of fashion model opportunities, eg in the Telegraph. The FT and the Daily Mail stockmarket reports both led with the news that UBS has downgraded Debenhams from Hold to Sell, on the basis that “Debenhams is a business that has accepted the need for change, but appears to be struggling in the execution”. The Telegraph market report noted that UBS had also upgraded Dunelm, whilst the Times market report noted a Credit Suisse downgrade of mighty Next. The FT flagged that Tesco’s data analysis business Dunnhumby has set up a joint venture in China, in an effort to boost valuations of the operation ahead of next week’s final bids (with likely offers said to be pitched at only around a disappointing £700m). And the Independent had a snippet about the weak John Lewis sales figures announced on Friday, blamed
on “hot and cold weather”.

Sunday Press:
The Sunday Telegraph went to town on the good results reported by the fashion chain Joules for y/e May and interviewed the founder Tom Joule about his plans, with the 100th store about to be opened, whilst the Sunday Times also ran the story. The Mail on Sunday reported that Ocado is close to launching its first Overseas licensing deal, probably with the US supermarket chain Albertsons, which would see it taking on Amazon Fresh on its home turf. The Mail on Sunday also flagged the good results announced by the cosmetics chain Space NK, whilst the Sunday Telegraph highlighted the space reallocation moves in Mothercare’s biggest stores and the main Business story in the Sunday Express was that the discounters Aldi and Lidl are heading for a 15% share of the UK grocery market. Finally, the Sunday Express noted that Wyevale Garden Centres are about to start merchandising
their Xmas product range…

Bank Holiday Monday: Always a thin news day, although there were a lot of articles about Bank of England Governor Mark Carney’s weekend comments that the UK would not be de-railed by the China crisis from raising interest rates early next year…Otherwise, the cupboard was pretty bare, although the Daily Mail flagged that Tesco is to sell the new “Iron Maiden” vinyl album in its biggest stores and the Telegraph noted that Ecco, the Danish shoe chain, which has more than 40 shops in the UK, is preparing to open 25 more branches by 2017.

Grocer 33 Watch: The guest retailer, Iceland, In the widely followed Grocer “33” weekly supermarket pricing survey in the Grocer magazine on Friday afternoon, just managed to beat Asda with its basket of £57.50 just 83p cheaper. But had it not been for Iceland, Asda would have easily come top again, with Morrisons as much as £5.31 more expensive, whilst Sainsbury was a further £3.16 more expensive.  Interestingly, Tesco was only £1.69 cheaper than Waitrose and was nearly £11 more than Asda’s £58.33 basket…There was better news for Morrisons in the separate Grocer “Mystery Shopper” survey on Service and Availability service survey, as their store in Carmondean near Livingston in Scotland, with an impressive score of 87 out of 100, just managed to beat Asda to win the survey.

Nielsen Watch:
The great rival to the Kantar market research business, Nielsen, came out with their latest monthly UK grocery market share figures on Friday and they showed slightly worse trends for the “Big 4” and slightly better still figures for Aldi/Lidl. Their headline focus was on the fact that industry sales volume fell year-on-year for the first time since early December 2014, by 0.3% for the four weeks ended August 15th (with total sales by value down by 1.1%). It’s a shame that the detailed 4 week Nielsen market shares are not available, but over the 12 weeks to August 15th the subtle differences with the Kantar data that came out last Tuesday are interesting: Kantar said that Tesco was down 0.9% in gross sales over this period, but Nielsen measured their decline at 1.2%; Kantar said that Sainsbury was up by 0.1% in gross sales, but Nielsen said they were down by
0.5%; Kantar said that Asda was down 2.5% gross, but Nielsen said they were down by 3.4% and Kantar said that Morrisons was down by 1.1% in gross sales, but Nielsen said they were down by 1.3%. On the other hand, Kantar said that Waitrose was up by 3.7% in gross sales, but Nielsen said they were up by 4.1% (both estimates look over-cooked relative to the actual weekly figures reported by Waitrose); Kantar said that Aldi was up by 18.0% in gross sales, but Nielsen said they were up by as much as 22.6% and Kantar said that Lidl was up by 12.8% in gross sales, but Nielsen said they were up by 14.8%. Finally, M&S followers will be pleased to hear that Nielsen said that M&S Food sales were up by 3.1% in the 12 weeks.

News Flow This Week: Things are quiet this week after the Bank Holiday weekend, as we move into September, but the deadline for the Conviviality Retail bid for Matthew Clark is Friday. The latest FTSE Index quarterly review is tomorrow evening (based on tonight’s closing prices, with Morrison’s position in the FTSE 100 under threat) and John Lewis unveil their exciting new Home department in Oxford Street on Thursday.

Nick Bubb – nicholas_bubb@hotmail.com

Friday Wrap:

This was produced for distribution last Friday 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:

Restaurant Group H1 numbers:

• The Restaurant is performing relatively well.

• LfL sales are + 2.5% in H1 (26wks) having been up 2.0% at w19 (the group’s AGM)

• This suggests an acceleration in Q2 but 1) this could be a rounding difference and 2) the group was up against soft, World Cup comps last year

• The group is set to open around 45 units this year and Alan Jackson, Chairman, says that the group could double its estate in 8-10yrs

• This implies that the current rate of openings (the group has around 470 units at present) will continue for the next decade

• That’s a big ask. Elephants can’t jump and there may not be millions of would-be customers out there who cannot find a restaurant at the moment

• RTN is well positioned & well-known to developers but this expansion is not a given; it may or may not happen

• Competition may pick up etc. etc. and, who knows, the group may have to turn to the High Street once again in order to expand – and here the competition really is brutal

• Hence it comes down to ratings.

• RTN is slated to earn around 30p this year. It is growing earnings by 12% but c2% of this is a tax boost & therefore a one-off. PBT is growing by 9.6%.

• The group is therefore priced at around 23x prospective earnings & that seems like quite a high price to pay for 9.6% growth – however certain or perhaps uncertain that may be

• Additionally, the group has an EV of around £1.4bn (nearly all equity, very little debt) suggesting that its restaurants are being valued by shareholders at around £3m

• A small proportion of the group’s outlets (i.e. most of its c50 pubs) are freehold & £3m is quite a lot to pay for a leasehold unit that should cost less than £1m to build. As a point of interest, the group spent £14.4m in H1 in opening 12 sites.

• Whilst acknowledging the group’s undoubted strengths, we believe that RTN’s valuation is stretched & would be inclined to take profits at these levels.

Evolution in the UK on-trade:

• Repetitive info but nonetheless important for being a tad boring

• Today we have burgers evolving (mentioned here before) & beer sales under pressure (mentioned here before).

• We also have mention of contactless payments. These have trebled in a 12 month.

• Pubs, Costa, even London Underground for heaven’s sake have the facility meaning that those who don’t (the food retailers, for example) may look a little ‘so yesterday’ before too long.

• Admittedly the £20 limit (£30 from next month) is not much of a problem for Costa or The Tube but it may be for Sainsbury, Tesco, etc. – and there’s nothing antagonises a queue like a busted transaction…

Oil prices, input costs etc.

• Oil yesterday staged its biggest price bounce in 6yrs

• It’s only going back to levels of a couple of weeks ago – and the economics (Iran, slowing China, fracking etc.) suggest that prices should remain weak – but it’s worth keeping an eye on this as 1) it’s an important input in terms of costs, 2) it’s price has an influence on what cash punters have left after they’ve filled their car’s tank and 3) it will be watched by the Fed & the Bank of England & those bodies have the power to change all of our lives.

Interest rates:

• September for the Fed is still an option.

• But it’s looking odds against.

• However, and simply in order to get the ball rolling, a rise, maybe even only of an eighth of one percent, is more likely this calendar year than not

Confidence, consumer spending etc.

• We have gone with the Big Ticket > Small Ticket story for some time now.

• This should be finite, we’re betting on it to tail off towards the end of the calendar year.

• But in the meantime it would go some way to explaining why consumer confidence (see Mr Bubb on GFK in earlier email) is not feeding through to High Street spending – at least not yet

Random information, hopefully not all of it useless (re most leisure operators etc.):

• UK share prices flirting with zero change.

• US markets messed around yesterday & then surged in the last hour.

• Sentiment is pinging around. When the markets fell, there was talk of QE4 in the US, now they’re rising, there’s talk of rate rises again

• Weaker Euro should help Pernod, Heineken etc. when reporting results. Stronger US$ will have the opposite effect on AB InBev etc.