Langton Capital – 2015-09-24 – Thomas Cook, TUI, drinking trends, Tracker & other:
A Day in the Life:
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It’s amazing what we’ll put up with, isn’t it?
I mean take IT, for example. I mean I don’t know a great deal about it – though I can turn a machine off and back on again with the best of them – but I dare say if I Googled a minor problem, I’d have a fighting chance of solving it but oh, no, it’s much preferable, or so it would seem, to put up with minor irritants for months if not years before you finally get around to doing anything about them.
And my favourite love-hate at the moment is with incoming email. I get the 21st century version of ‘you’ve got mail’ popping up on my screen when, well, I’ve got mail and, because the alert has been programmed to sit above everything else that I’m doing, it will get in the way of simple tasks like writing a Word document or checking the latest on Hull City.
Hence, whilst I could investigate the issue and probably remove the popups, I prefer to chunter, swear under my breath and hit the ‘X’ button in order to kill the little blighter. On to the news:
Pub, Restaurant & Drinks Producer News:
• BBPA Stats Handbook reports ‘no rise in alcohol consumption – but record tax receipts for Treasury’ + says UK taxes 14x those in Germany. It says that the indicators of the harmful use of alcohol are down. Only 8% of those aged 11-15 had experimented with alcohol in 2014 compared with 20% in 2007.
• BBPA says UK alcohol consumption stable in 2014 + is down 19% on 2004 peak. UK stands 19th per capita in Europe
• BBPA says ‘sector remains a very healthy source of tax revenues for the Treasury, despite recent cuts in duty.’ Alcohol sales taxes in 2014/15 are said to have reached a new high of £18.4bn.
• BBPA handbook suggests hospitality sector added 151k jobs in 2014 + CEO Brigid Simmonds comments ‘it’s great to see beer putting in such a solid performance in 2014, while at the same time, the trends in alcohol harm are coming down.’ She adds that ‘with the right policies for the hospitality sector, there is huge scope for growing the economy, creating new jobs and careers.’
• TGI Friday’s UK reports 10% rise in total sales in FY15 to date. Group to invest £3.5m in fitting out former Yates’s Leicester Sq.
• ALMR chief executive comments on yesterday’s Cask Report: ‘The renaissance of cask beer has been one of licensed hospitality’s greatest success stories of recent years and indicative of the great strength and variety present across the pub sector. We have also seen a year-on-year increase of 21% in premium beer categories such as craft, with a market now worth over £428million. Cask beer aficionados are spending more time in our pubs, increasing spend on food and driving growth in other quality, artisan products. They are part of a customer-base craving the authenticity and premium offer that only licensed hospitality can provide.’
• Whitbread is working on a new health-inspired restaurant concept, writes M&C. A spokesperson for the company said: ‘At Whitbread we are always looking at ways we can innovate our product offer and testing new concepts. We don’t have any more details to share at this stage.’
• Tesco is to bring to an end 24-hour opening times at its larger stores as sales figures do not justify the costs. Stores will instead open at 6am and close at midnight.
• Asda’s latest Income Tracker shows British consumers had an extra £18 a week to spend in August compared to 2014. The average UK household had £191 a week of discretionary income in August 2015, thanks in part to a 12.9% drop in the price of fuel.
• C-stores are seeing their profits squeezed by rising costs and fear increases to the National Living Wage will exacerbate the problem. Association of Convenience Stores chief executive James Lowman warned the wage would be a major concern for small stores, saying: ‘Retailers are experiencing cost increases in many areas of their business at the moment, but the two most pressing concerns for retailers in the coming year will be the introduction of the National Living Wage and changes to Sunday trading regulations.’
• Asda’s new national price cap on unleaded fuel means drivers will pay no more than 105.7p per litre at its 272 petrol stations.
Holidays & Leisure Travel:
• TUI updates on Q4 trading, says ‘Summer 2015 trading has remained robust since our last update’. It adds ‘we are particularly pleased with the strong performance by the UK and continued margin improvement in the Nordics.’
• Group adds ‘Winter 2015/2016 is trading in line with our expectations and we are pleased with the early start to UK trading for Summer 2016.’ It says its growth strategy is delivering results and concludes ‘we are confident of delivering underlying operating profit growth of 12.5% to 15% in the current financial year and at least 10% underlying EBITA CAGR over the next three years.’
• TUI says ‘the season is now almost fully sold, with bookings and average selling prices ahead of the prior year.’ Says ‘we are pleased with the performance of our Hotels & Resorts business and Cruise bookings continue to grow significantly’. Group has sold 96% of Source Market programme, in line with prior year. It says overall bookings are up 1% and average selling prices are up 2% ‘with a particularly strong performance from the UK.’ TUI says UK bookings are up 8% ‘driven by long-haul growth’ and it says Hotels & Resorts are performing well.
• TUI re UK: ‘Bookings are up 8% + average selling prices are down 1%, reflecting significantly lower jet fuel costs + impact of weaker €.’ Bookings are down in the Nordics (by 3%) but ‘volumes in the past month have been ahead of prior year.’ It says that ‘in Germany, bookings are down 5%, driven primarily by a reduction in seat-only, as the business aims to increase the mix of package holidays.’ The group will report FY numbers on 10 December.
• Air Partner has reported a 13% rise in gross profit to £10.6m and a 100% leap in underlying PBT to £2.2m for the H1 to 31 July. Underlying basic EPS was only up 26% to 17.1p due to the non-recurrence of last year’s tax credits. Cash balances decreased by £1.4m from £6.1m due to the timing of working capital balances and the recent acquisitions of Cabot Aviation (for £1.1m) and Baines Simmons Ltd. (for £6m).
• Air Partner: The group credited a strong performance in commercial jets in the UK and Europe for its encouraging first half results, although its US business was impacted by lower activity from a key customer. Meanwhile its UK private jets division performed well, but Europe was ‘sluggish’ and the US was also below expectations. Management added that the trading outlook for the full year remains in line with the expectations of the Board.
• Air Partner: CEO Mark Briffa commented on the results: ‘The integration of Cabot Aviation has gone well and we are seeing benefits from leveraging our customer and supplier relationships, as well as new remarketing opportunities arising as a result of being part of our Group. The purchase of Baines Simmons in August is an exciting opportunity for Air Partner to extend the Group’s service and product capabilities and should further strengthen our customer proposition. As well as the benefits that the acquisitions should provide for our customers, they are important steps in the Group’s aim to build wider and more stable revenue streams that sit alongside and complement our broking activities.’
• On the Beach has confirmed plans to raise more than £90m in an IPO which will value the online travel agent at £240m. The company is understood to have reduced its valuation from £270m following recent market turbulence.
• Imagine Cruising has seen a 40% growth on the demand for cruise and stay holidays this year after expanding its portfolio.
• 32Red H1 numbers, sees ‘record revenue performance’, sales £17.7m (+20%), PBT £0.1m (2014: £1.2m)
• 32Red H1: Says is ‘confident of meeting full year expectations’ + ‘current trading in H2 to date remains strong’
• Photo sharing app Instagram now has more than 400 million users compared to 300 million just nine months ago. The app now has a larger user base than Twitter, with 80 million photos shared each day.
• Music streaming site and Spotify rival Deezer is preparing for a €1bn IPO. Deezer, backed by private equity firm Idinvest, boasted revenues of €142m in 2014 and is predicting growth of around 35% this year.
Finance & Markets:
• ECB Chair Mario Draghi reports risks to Europe’s inflation + growth outlook have increased due to EM slowdown. ECB will take its time before deciding on whether or not it should increase stimulus measures. Draghi commented ‘the asset purchase programme has sufficient in-built flexibility. We will adjust its size, composition and duration as appropriate, if more monetary policy impulse should become necessary.’
• Markets: UK + Europe up yesterday but US markets lower + Far East mostly down Thurs. Japan catching up on downside post 3dy holiday
• Oil down a little at just over $48 per barrel
Thomas Cook Q4 IMS:
Thomas Cook has this morning updated on Q4 & FY trading and our comments are set out below:
Group says ‘with our Summer 2015 holiday programme now almost fully sold, trading has progressed well overall’
It adds ‘all markets are performing in line with our expectations, while Northern Europe has enjoyed particularly strong trading in the second half of the year’
TCG adds ‘winter 2015/16 trading has started positively, with improved bookings in all major source markets.’ It adds ‘demand has continued to grow for our differentiated holidays, particularly to our own-brand hotels’
TCG concludes ‘guidance for the full year remains consistent with our expectations at the time of our third quarter results in July’
It says ‘our focus is on moving the Group into the next phase of transformation in order to generate growth, through an improved customer experience and more efficient and better integrated operations’
Thomas Cook reports ‘the Summer season is approximately 91% sold for the Group as whole, in line with the same time last year’
It says ‘booking trends in the late Summer season have been in line with our expectations, leading to a similar bookings position for the Group to that reported at our third quarter results on 30 July.’
Tunisia is effectively closed and TCG has seen ‘a significant increase in the number of customers travelling to Greece and Egypt, while our strategy to invest in long haul routes is paying off, with particularly strong growth in holidays to the USA and the Caribbean.’
UK is 95% sold, 1% ahead of the same time last year and average selling prices are up by 4% both for package holidays and for seat only
In Northern Europe ‘following a slower start to bookings in the first half of the calendar year, demand has accelerated substantially and the business has performed particularly well in the second half of the year, helped by recent poor weather in Scandinavia’
Summer 2015 is now 99% sold in Northern Europe ‘with bookings 1% higher than last year and average selling prices 4% higher.’
In our Continental Europe business, capacity commitments are 90% sold, similar to the same time last year, with pricing 1% lower. Airlines Germany is 89% sold (same as 2014).
Winter 2015/16 & Summer 2015:
TCG says ‘while it is early in the booking cycle, we are encouraged by strong booking and pricing trends for both the Winter 2015/16 and Summer 2016 seasons.’
Winter is 39% sold and ‘all of our major source markets are ahead of last year in terms of booking volumes, with improved pricing trends particularly in the UK and Northern Europe.’
Transformations Update & Fosun:
TCG says ‘our transformation continues at pace, as we execute our strategy for profitable growth.’
It says ‘demand for differentiated holidays is growing. Bookings of our own-brand hotels, which are mostly exclusive to Thomas Cook, have increased by 38% for Summer 15, with particularly strong growth in the UK, Germany, the Netherlands and Belgium. ‘
Online continues to grow with bookings on smartphones and tablets up 30% v last year
TCG is now ready to move ‘into the next phase of its transformation.’ It will further improve product quality ‘with a core focus on our own-brand hotels and airline’
Re Fosun, the group says ‘we continue to develop our strategic partnership’ and it says ‘in particular, we expect our China joint venture, which will develop domestic, inbound and outbound tourism activities for the Chinese market, to become operational by the end of 2015.’
It adds ‘we are also making progress with jointly establishing our hotel investment vehicle’ and says ‘we will provide a further update on these initiatives at our full year results in November.’
Group says ‘our underlying business has continued to develop in line with our expectations, despite the impact of disruption in certain destinations and significant foreign exchange headwinds, as previously announced.’
It says ‘demand for our differentiated holidays has accelerated in Northern Europe during the course of the year and has continued to grow in the UK, while conditions in Continental Europe have remained challenging.’
Overall, it adds ‘our airlines have experienced strong demand as our strategy of investing in the customer experience, expanding our route network and growing our seat only business is paying off’ and it concludes ‘we expect our financial results for the current financial year to be in line with our expectations at the time of our third quarter announcement in July.’
Langton Comment: Thomas Cook has reassured that trading is in line with expectations.
Indeed, our feeling is that the year is ending very well indeed with late prices holding up and demand stronger than at this time last year.
The group is moving to the next phase of its development, it is moving forward with Fosun and it will have an inbound and outbound China tourism business operational by the end of this year.
The group is (now) conservatively managed and, whilst it is not covered in today’s announcement, it is solidly financed.
The group, after accounting for issues in Greece and for the tragic events in Tunisia, is set to earn around 8.2p this year, putting the shares on a multiple of around 14x earnings. Next year (to Sept 16), which should be regarded as more representative, TCG should earn c12p, putting the shares on a multiple of 9.7x earnings of the year due to commence next week.
TCG’s JV with Fosun (the latter has yet to buy 5% of TCG in the market – and there are some suggestions that it could bid for the whole company) is exciting and potentially a major game-changer. At a single-digit (FY16) multiple of earnings, we believe that the group’s shares offer solid value.
Retail Roundup from Nick Bubb:
Kings Cross Gentrification Watch: If you haven’t ventured north of Kings Cross station recently then you’d be amazed to see all the development that has taken place and, ahead of the relocation of mighty Google to a huge new office in the area next year, Waitrose is opening a 20,000 sq ft store and Cookery Skool today in an impressive conversion of the old brick Midlands Good Shed, just north of the main station. There is no car park, but there will soon be a ton of affluent people working and living in the area and Waitrose has anticipated their needs with an excellent wine bar, a juice bar and a coffee shop, as well as a terrific wine, beer and spirits department.
AO World Watch:
West End Store Opening Watch: If you’re in the West End today then you may be drawn to the opening of the new ToyStore at Bond Street Tube station, but if the thought of buying toys for Xmas literally makes you sick, then head behind Debenhams to Wigmore Street and pop into the recently refurbished John Bell & Croyden pharmacy, which has a Walk In Clinic offering immediate access to a consultation with a Pharmacist for emergency prescriptions and a range of minor ailment treatments at a reasonable and competitive cost!
Nick Bubb – firstname.lastname@example.org
This was produced for distribution yesterday 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:
Greene King Tracker:
• The words are relatively upbeat but the Tracker is only pointing to a £1 increase in spending in August year on year to £222.47.
• The headline comment ‘this positive set of results reflect significantly increased levels of consumer confidence as the UK recovery becomes firmly established’ seem to jar a little with the fairly modest findings.
• GNK suggests that the finding that ‘over half the sample have no intention of saving for their Christmas splurge’ is good news – and it maybe is.
• It requires a little confidence to go into Christmas with no ear-marked reserves. GNK says ‘this is a big departure from the dark days of the downturn when Christmas cutbacks were the norm’.
• Overall, the picture that we have is of steady but unspectacular growth. Fortunately, with inflation at 0%, any increase in nominal spend translates point for point into a real spend increase and, coming out of the worst downturn in 70yrs or so, every little helps.
It’s more than just semantics…
• But, when you look at it, we’re not ‘just coming out of recession’ at all, are we?
• UK GDP fell for five quarters to and including Q2 2009.
• It then fell in Q2 and Q4 2012 but, because these were not sequential, we can’t say that this was another recession or even, really, a double dip.
• Hence, if we say the recession ended in Q3 2009, we have to concede that we’ve been in recovery for six years and, in the pre-Thatcher era, that was about the length of time between cycles. Just saying…
• Greene King suggests that ‘growth in holidaying abroad this year will have likely meant, for family households in particular, a need to make compromises when at home to offset the impact on household finances’.
• It says ‘in August, family households reduced spending on Other Leisure by £17 (12%) year-on-year, suggesting that when looking to offset spending on expensive family holidays, these households cut spending on these activities both prior to, and following, trips away.’
• The flip side is that the overseas holiday companies, TCG, TUI, DTG, will have sold out well in August.
• We hear from TCG tomorrow and from TUI on 30 Sept.
Random information, hopefully not all of it useless (re most leisure operators etc.):
• Market regaining a little of its poise. As of this morning, the FTSE100 was down 9.6% on the year but down 16.4% from its May peak. That’s bad enough but it feels worse, doesn’t it?
• If corporate profit growth comes into question, ratings will to. It’s part of the reason why spikes down are often more acute than spikes up. You get a double-whammy; estimates come down & so do the ratings that investors are willing to pay.
• Yesterday was a ‘risk off’ kinda day. Miners etc. down, food producers, household goods stocks up.
• Commodities: All flat out cheap except perhaps cocoa and, to a lesser extent, corn & wheat, which are both showing some signs of life.
• Carnival says that it has just had its strongest quarter ever. Diageo says that it should achieve ‘mid-single digits’ organic growth from FY17.
• US interest rates, the betting now’s on a December rise.