Langton Capital – 2015-10-01 – Daily Wrap: Stonegate, c-stores, big ticket spending & 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:
Stonegate IPO possible early next year:
• An IPO as the preferred exit route for owner TDR Capital.
• The latter has been patient in that it set up what is now the fourth largest managed pub company in the UK in 2010 in order to acquire 333 wet-led pubs from M&B.
• The estate now comprises around 665 pubs across the country and encompasses brands such as The Slug & Lettuce, Yates’s, The Living Room, Screama & others.
• When it comes to an exit, however, much will depend on 1) the projected growth profile (for a group of relatively well-capitalised wet-led units in a competitive market and 2) the price.
• At the moment, we have limited visibility on 1 as there are few wet-led peer companies and we don’t know 2.
• So, at the moment, we’re in something of a holding pattern. The Times yesterday quoted Simon Longbottom, the Stonegate chief executive, as saying that no decision had yet been taken on an IPO. He added ‘we’re really ambitious and we’re going to grow whatever our ownership structure.’
Convenience stores, topping out?
• Convenience stores, along with online, have been the two main growth areas of a beleaguered UK grocery market in recent years, with Sainsbury’s and Tesco leading the expansion.
• Upon second glance though c-stores bring with them their own host of problems. Top-line sales growth has been undeniable however site profitability can vary when taking into account higher rents and staffing costs etc.
• A recent CBRE report noted the ‘startling increase’ in c-store numbers over the last decade. The number of convenience outlets has trebled among the Big Four since 1996, yet studies show it can take 10 to 15 convenience stores to match the level of sales generated by one big box supermarket (which should also be more profitable).
• Furthermore, the group points out that although Aldi and Lidl have also trebled in size since 1998, their growth is ‘not sufficient to explain the sudden contraction in the big four’s share of grocery sales following 2011.’ A possible secondary explanation for their poor performance might be that their own c-store growth has led to a cannibalisation of sales.
• The market also shows signs of becoming overheated, with Booker (via Londis and Musgrave), McColls, Conviviality, and even BHS (again, courtesy of Booker) getting in on the action.
• While Sainsbury’s is continuing with its c-store rollout, as confirmed in its bullish Q2 figs, Morrisons is taking the opposite stance of offloading its M-stores at a loss. It will be interesting to see what fortunes their diverging strategies bring in the coming years.
National Living Wage:
• Costa has become the latest operator to insist that it will be paying staff the NLW long before the legislation comes into effect. Lidl, Morrison’s & others have already commented to the same effect.
• Hence the Chancellor’s goal of fighting deflation with corporate cash looks to be paying off.
• Clearly there are costs involved with payrolls but, with many companies having a little fat – double-time Bank Holidays, staff food etc. – to potentially cut, it shouldn’t be forgotten that there should be benefits via increased demand as well.
Big ticket vs small ticket spending – the VW effect:
• So it can’t be long before some filthy, bottom-feeding company embarks on a class-action campaign and we start to get PPI-style automated voice messages beginning ‘our records suggest that you recently purchased a Volkswagen motor vehicle…’
• With any luck, this will be stamped out.
• But it probably won’t be and, with VW deemed to have deep pockets, there may be a windfall coming the way of a number of consumers.
• The question is, will the potential dollop of cash’s positive impact on big-ticket spending outweigh the impact that the delay in purchasing cars caused by the VW ‘scandal’ has on the car market?
• In some lights, if consumers hit the ‘pause’ button re car purchases, we could see more money spent down the pub
Random information, hopefully not all of it useless (re most leisure operators etc.):
• Sainsbury +14%. Drags other food retailers up. Food manufacturers may also show a few signs of life if there is at least a little light at the end of the tunnel.
• $64k question is how much of SBRY’s upgrade was down to SBRY alone and how much is the market. Share prices give some indication; SBRY +13%, MRW +6%, TSCO +7%.
• Q3 markets finished with a rally. Three month period as a whole still ugly, however.
• China closed for 2dys so markets may lack a lead.
• Corn prices on the up.
• Some 95% of diners suffering poor service will tell their friends whilst only 50% will complain. See earlier email.
• Punch hosts an EGM to okay the sale of its 50% share of Matthew Clark today. It’s a circular comment but no surprises are expected.
We’re so 21st Century, this morning’s Tweets (diff. font size denotes importance):
1. HospitalityGEM has suggested that 87% of diners would not return to a restaurant that had offered slow service.
a. Slow service. Some 95% would tell their friends about unsatisfactory experience whilst only 47% would complain on site
2. Technomic points out that the global divestments required in AB InBev’s potential takeover of SAB could set off a domino effect
3. Stonegate Pub Company has taken another step towards a £1 billion stock market listing after agreeing to buy 53 more pubs
4. Costa has announced its 12,500 staff will be paid a minimum of £7.40 an hour ahead of the introduction of the National Living Wage
5. UK burger market now worth c£3bn thanks to a raft of innovative new entrants forcing big brands to stay sharp per M+C
6. JW Lees posts record year in 12mths months to 31 March 2015 with turnover up 1.8% to £64m + pre-tax profits up 22.3% to £5.6m
7. Coaching Inn Group has nearly doubled its pre-tax profit for the year to March 2015 from £271,000 to £510,000
8. Kentucky-based spirits maker Brown-Forman to sell Southern Comfort + Chambord labels + focus on its core whiskey brands
9. America now has over 4,000 beer breweries and is close to its all-time record, according to the US Craft Beer Association
10. FirstGroup Q1, saying its price increases and cost cutting measures are currently being offset by cheaper fuel and other factors.
a. First Group: ‘We are on track to meet our financial objectives through our multi-year transformation plans’
11. European hotel sector seen its volume of transactions reach €12bn in the year to date, according to HVS
12. Travelzoo survey finds >50% of Brits are avoiding popular winter sun hotspots in favour of ‘safer’ destinations
13. Former Tui and Airtours boss Chris Mottershead has been promoted to managing director of TCG UK
14. China factory PMI ahead of expectations, hits 49.8 from 49.7 in Aug. Any number <50 implies contraction, however
a. IMF boss Christine Lagarde has warned on global growth + says she expects only a slow acceleration next year
b. Eurozone back in deflation in Sept as prices fall by annualised 0.1%. Energy prices were down 8.9% y-o-y. Core inflation +0.9%
c. Eurozone unemployment rate unchanged in August at 11%. Rates vary from <5% in Germany to >25% in Greece, 22% in Spain
d. Nationwide: House prices +3.8% to Sept v 3.2% in the year to Aug. London v provinces gap (London 3.5x North England) is widest ever