Langton Capital – 2015-09-07 – Daily Wrap: VAT campaigns, contactless, consumer debt & 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:
Campaign for VAT reduction across leisure services:
• Interesting to note that M Borel has now suggested that expecting an immediate cut in VAT for leisure services to 5% was unrealistic.
• The M+C reports ‘Borel’s new offer to Government is a cut to 10% VAT on food and alcohol under 15% ABV for three years before a further cut to 5%.’
• That too may prove to be over-optimistic as 1) it’s hard to see the government sacking nurses to give alcohol a break and 2) it’s always an attractive option for politicians to maintain the status quo and do nothing.
• M Borel says that he is talking to potential new members but accepts there will be no Tax Equality Day in 2016, implying that two was enough. M Borel conceded that the Tax Equality Day was ‘a very expensive operation.’
• On the basis that campaigns have to move forward if they are to avoid moving backwards, the campaign for a VAT reduction does run the risk of losing some of its momentum
Technological changes, evolution etc.
• The contactless limit rose to £30 from £20 on 1 Sept.
• Why is it then, that whilst, the Co-op, Waitrose, Boots, Costa, Tesco & Drake & Morgan accept contactless, the two Sainsbury’s closest to Langton Capital don’t?
• We posit that this is not something that can be ignored & will keep an eye on the situation going forward.
Sterling, interest rates etc.
• As betting has shifted back to a September rate rise Stateside, Sterling has weakened against the US$.
• As Europe has alluded to growth, it’s weakened against the Euro.
• This is hardly likely to suck in inflation in the very short term but it could raise some prices, particularly for dollar-denominated commodities that haven’t seen their prices fall – and admittedly there aren’t that many of them.
• So we missed a tumultuous week last week.
• And, when you look back on it with the benefit of hindsight, the movements and the micro-movements can be conveniently ascribed to China fears, US rate rise fears, commodity glut fears, etc. etc.
• But it just feels as though the market is having a wobble. That’s not a very scientific term but, with interest rates set to rise in the West for the first time since 2007 and China trying to manage down its growth rate from 10% to 7% to probably 4% without experiencing negative numbers, that’s hardly surprising.
• Hence, if Mr Market offers you a stock ‘too cheap’, you can buy it and if he bids you more than ‘fair value’, then you can sell it. Sounds easy, doesn’t it but, as always, the devil is in the detail.
The next Big Thing:
• Explaining the past is easier than explaining (forecasting) the future.
• It’s clear that new financial instruments incentivised property brokers to puff up the property market in the US and it’s equally clear that, when that bubble popped, there were going to be tears.
• But looking forward, what should we be preparing for?
• Well we’ve alluded to two issues above namely 1) getting our heads around the fact that interest rates can go up as well as down and 2) the fact that the Chinese authorities need to slow a half-million ton super-tanker whilst minimising collateral damage.
• But three, we would suggest, and we know the UK economy is relatively peripheral in world terms, the Citizens’ Advice Bureau may be on to something when it says that c1m interest-only mortgage holders may struggle to pay back the capital sums owed
• That may be like saying ‘some cows are brown,’ but it’s nonetheless true for that.
• Add to capital repayment woes the fact that there are concerns that Chinese buyers could pull out of the London property market (especially if Sterling weakens further) and that the CML economist Bob Pannell has said that the UK housing market is “dysfunctional” + we have the makings of a problem.
• It’s perfectly possible to spot 12 of the next two recessions but, hey, you have to start somewhere.
Random information, hopefully not all of it useless (re most leisure operators etc.):
• Commodity prices are still extremely low. We know oil’s cheap but so are metals, coffee, grains, cattle and lumber. Inflation, where art thou?
• Punch & Matthew Clark. Still waiting for news.
• Interesting to see Tesco imply that it may buy in some of its freeholds. Morrison’s is already effectively there.
• Ipsos has suggested that retail footfall in London fell by 9.5% on Tube strike days.
• Noteworthy that some retailers are blaming sluggish shop spend on an upturn in leisure spending
• John Lewis has now reported 4 consecutive weeks of lower sales. Perhaps a little early to say that the crown is slipping but it does highlight the fact that growth cannot be taken for granted.
• High car sales tend to confirm that big-ticket spending remains robust.
We’re so 21st Century, this morning’s Tweets (diff. font size denotes importance):
1. Conviviality has stated that ongoing negotiations over purchase of Matthew Clark (50% Punch-owned) are progressing well.
2. Jacques Borel has told M+C that a staggered reduction in VAT for hospitality firms would allow them to adjust to changes.
3. American-style fast-casual operator MEATliquor is in talks on three sites in and around London according to co-founder Scott Collins
a. Byron stepping up its rate of new openings in the UK. Tells Telegraph it will open 15 new sites this year with 13 confirmed for 2016
4. Telegraph reports Wetherspoon’s Friday FY numbers will ‘bear the scars from the breakfast price war it launched earlier this year’
5. Britvic has launched Tango Orange Sugar Free in the face of mounting criticism of high sugar products
a. Jamie Oliver’s petition for a tax on sugar-added soft drinks has exceeded the 100,000 required to force a parliamentary debate
6. Figures from NPD Pub Watch show pubs’ share of family visits continues to decline. Visits with children fell by 6.2% for year to end-June
7. Tesco sells Homeplus (Korea) for £4.24bn on free of debt basis. CEO Dave Lewis reports ‘this sale realises material value for shareholders’
a. Sources indicate Morrison’s to receive £30m to £50m from sale of its convenience stores to Greybull Capital.
8. The strong pound has allowed UK travellers to pay less than average hotel prices in 80% of European destinations for H1 2015
9. Bwin accepts £1.1bn bid from GVC Holdings after initially agreeing to an offer from 888 worth around £900m
10. US jobs growth slows in August but unemployment rate falls to 7.5yr low + wage growth picks up. Boosts interest rate rise fears
a. G20 leaders agree to do something (undefined) to boost disappointingly slow growth. Reliance on low interest rates alone is insufficient
b. ECB cuts inflation + growth estimates for 2015 + following 2yrs. M Draghi says recovery is ‘at a somewhat weaker pace than expected’
c. UK new car registrations +9.6% in Aug v rise of 3.2% in July. Big ticket spending still on the up, should abate by year end
d. Citizens’ Advice – c934k mortgage holders unable to pay off interest-only mortgages. Separately CMA calls UK housing market “dysfunctional”