Langton Capital – 2015-09-18 – Daily Wrap: Interest rates, SAB Miller, Merlin & 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:
Fed meeting, US interest rates:
• So did the Fed fluff it or did it do the world a favour, stare over the abyss and decide not to risk a rate rise until next month – or possibly next year?
• Far East shares were mixed overnight & we opened down suggesting that many observers see this (rightly) as a rise delayed rather than a rise cancelled.
• Maybe the Fed observed the weird rate rises put through (and almost immediately reversed) by the ECB in 2011 and has decided that it needs (even) more tangible evidence that the US economy is recovering before it ventures out on the ice.
• Or maybe it woke up yesterday and decided to do the world, particularly the EMs out there, a favour?
• Fat chance of that but, if this had been an exercise in magnanimity, then the offer has been thrown back in the Fed’s face with oil and equity markets down a little & traders simply rubbing out Sept and putting in Oct in their diaries.
• So uncertainty – at least as to timing if not to the event itself – remains the order of the day and cheap money is with us for that little bit longer.
• However, doom-mongers may point out that the average is the average because rates spend half their time below the spot rate and half their time above – this would suggest that, the longer rates stay low, the longer they will have to go high.
• The ONS yesterday reported that sales volumes rose by 0.2% in August but that prices (including petrol sales) fell by 3.3%
• Deflation remains an issue.
• The ONS points out that Aug was the 14th consecutive month of year-on-year price falls.
• The value on online sales, meanwhile, increased by 7.4% y-o-y.
• Even here (online), sales dropped 2.7% August on July suggesting that a larger than usual number of Brits were on holiday (probably overseas)
Random information, hopefully not all of it useless (re most leisure operators etc.):
• SAB/ABInBev: What do we know, right? This is a mega-billion deal with single-figure billions of synergies at stake meaning that quite a lot of work will have been done back-of-house. Overlap mostly in US but manageable elsewhere (so we are informed).
• The SAB/InBev deal in context. Combined profits are in the region of US$21bn. Combined sales around US$70bn. If synergies were say 2% of sales, that’s around US$1.4bn. But that’s forever, of course. NPV at 10% is therefor $14bn of value. Say 50 ultra-high level lawyers & corporate financiers working 50hrs per week would cost you perhaps $3m per week – or 2bps of the potential benefits. Against this background, it’s likely that quite a bit (millions of $$s worth) of work has already been done behind the scenes.
• Sterling up against US$ and Euro as it’s voted the country with the interest rate most likely to rise
• Corn, copper and cocoa up – is there a C-story out there – and everything else down.
• Travel & travel-type stocks did well yesterday with top-10 performances from Whitbread, SSP, TUI & IAG.
• Morrison’s announces CEO David Potts spent £0.5m buying another 315k shares at c159p. Takes his total holding to c883k shares.
• Punch’s strategy is 1) sensible and 2) very similar to that of Enterprise Inns. We expect considerably more detail with the group’s FY numbers on 12 November
• Merlin. Not cheap but growth (ex the accident) locked in. Not many companies have a decade (or even two decade) flight path to growth.
• Rugby. The ball might be the wrong shape but it is a big deal, right? BBPA says should be worth £68m in incremental sales, presumably most wet
We’re so 21st Century, this morning’s Tweets (diff. font size denotes importance):
1. Punch strategy taster with Matt. Clark disposal. Will review new managed + franchised pub operating formats ‘on a select number of sites’
a. Punch will initiate ‘modernisation of our pub tenancy and lease agreements’ + introduce ‘commercial free-of-tie lease agreements’
2. Coca Cola is highlighting the removal of sugar from some of its products amid attacks from the health lobby
3. M+C reports Imbiba-backed Darwin + Wallace has acquired a 4th site, the former All Bar One in Chiswick from M+B
4. Lidl is to become first UK supermarket to implement minimum wage. It will pay UK staff min. of £8.20 + £9.35 in London.
5. Oxford Economics has reported that UK hospitality + tourism industry employs 4.49m people, or around 10% of the workforce
6. HRG reports that Moscow is still the world’s most expensive destination for hotel accommodation despite recent rouble falls
7. Merlin analysts’ meeting: Group reiterated that it will forego a year’s growth in FY15 but good stuff going on beneath surface
a. MERL meeting: Reiterates Alton Towers setback expected to be 6mths to 18mths in duration. FY16 will be impacted.
b. MERL meeting: Thorpe Park feeling some Alton Towers issues, Midway performing well though strong Sterling an issue.
c. MERL meeting: Gardaland in Italy exciting, foreign visitors now 30% up from 5% + new openings globally very strong
d. MERL meeting: Lego better than expected, theme parks worse. Some may say that ‘improves’ the flow of earnings
e. MERL meeting: Many accommodation infill opportunities remain, ditto geographic infills in US + Asia in general
f. MERL meeting: overall impression is of a co that has had a setback but which has underlying growth baked in for many years
8. US leaves rates unchanged, some relief but more worry on basis of ‘may go up next time’. Has to be correct once, right?
a. Fed policy hold seen as nod to global economic worries, slow growth etc. Major (positive) impact may be in Ems
b. UK mortgage lending in first 8mths of this year is ahead of full year lending in both 2010 and 2011 (at £138.6bn to date)