Langton Capital – 2015-10-01 – Dining trends, Stonegate, hotel trends, economy & other:
A Day in the Life:
Follow us on Twitter at either @langtoncapital or @brumbymark.
If you ever needed further proof that change is a constant and that things are moving on at a dizzying pace, it’s that Facebook is being eclipsed by other social media offers, tweets are overtaking email, phone-calls are seen as some sort of quaint Victoriana (and letters are from the dinosaur era) and websites are being replaced with apps, whatever they are.
So hey, get with the programme and if you, like me, don’t know an Instagram from a Telegram, at least pretend that you do.
And while you’re at it, look at what’s going on in the world of fashion and throw your tie in the bin. In fact pull the collar off your shirt altogether. Better still, get your granddad’s collarless wedding shirt out of the attic, cut the bottom 3” (not 4” and certainly not 2”, that would just be sad) from your navy trousers and make sure that you’re wearing brown shoes and that should do it.
Maybe hold off on the tattoos until you’re sure of the look. In fact, if you’d like to see the creatures in their home environment, pop around to our offices near Shoreditch any day with a Y in it. On to the news:
Pub, Restaurant & Drinks Producer News:
• See Sainsbury comments on big-ticket v small-ticket spending in Wrap at foot of email. Suggests could be 2016 before the latter picks up. Says it is not yet sharing fully in the consumer recover; too much being spent on cars, furniture etc. Not new news & shares up strongly yesterday.
• HospitalityGEM has suggested that 87% of diners would not return to a restaurant that had offered slow service. Some 95% would tell their friends about the unsatisfactory experience whilst only 47% would complain at the time.
• Reds is to open its 6th site at the rear of the Liverpool One development.
• Casual Dining mag reports French pasta chain Francesca is reported to be set to open 5 sites in the UK this autumn.
• Technomic points out that the global divestments required in AB InBev’s potential takeover of SAB could set off a domino effect. Other brewers and beverage companies will be looking with interest to see what businesses become available as a result of the merger.
• Stonegate Pub Company has taken another step towards a £1 billion stock market listing after agreeing to buy 53 pubs from Lone Star Funds. The deal is worth a rumoured £100 million and will lift Stonegate’s total estate to 665 pubs, reports the Times.
• 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. Baristas in London will earn a minimum of £8.20 an hour rising to over £9.
• The UK burger market is now worth nearly £3bn thanks to a raft of innovative new entrants forcing big brands to stay sharp. M&C Allegra Foodservice’s Burger Brand Analysis shows McDonald’s and Burger King keep a hold of the top two spots, with 85% of total outlets and 90% of turnover in the UK. The report also shows MEATliquor has the highest average weekly sales, at an estimated £60,000.
• JW Lees has posted a record year in the 12 months to 31 March 2015 with turnover up 1.8% to £64m and pre-tax profits up 22.3% to £5.6m. The group has been busy spending £4.9m on three new sites among other things while disposing of 12 bottom end pubs. JW Lees has now has an estate of 149 pubs comprising 36 managed houses, 111 tenancies and 2 hotels.
• William Lees-Jones, Managing Director of JW Lees said: ‘We have delivered against our five-year plan that we drew up following the challenges and effects of the ban on smoking in public places. Aggregated sales over the last five years from 2010 to 2015 have been £297m and aggregated pre-tax profits in the same period of £23.1m: this means that pre-tax profits over the five years have grown by 60% in total with steady growth in most years and pre-tax profits before property disposals at £3.5m, £3.9m, £5.2m, £4.6m and £5.6m in each year. JW Lees is a long-term family business and we are proud to continue to build a high-quality brewing and pub business.’
• Coaching Inn Group has nearly doubled its pre-tax profit for the year to March 2015 from £271,000 to £510,000 per Propel. The group is benefitting from its investment programme and has seen a 22% rise in turnover to just over £10m. The M+C reports that the group is set to buy two more properties early this month.
• Finance director Edward Walsh commented: ‘We’ve seen excellent growth across the estate, with investments at the Old Bridge, Holmfirth and the Three Swans, Market Harborough in particular helping to drive turnover over £10m. The resulting growth in site level profitability has been key in helping us to secure further external investment and gives us a strong platform for the next stage of our development. With the completed acquisition of the Royal Oak in Welshpool and two further sites expected to complete in October, we remain ahead of our acquisition target for the year as we aim to double the size of the estate before the end of 2018.’
• Kentucky-based spirits maker Brown-Forman is to sell its Southern Comfort and Chambord labels and focus on its core whiskey brands. The producer is looking to shed non-essential assets so it can focus on brands like Woodford Reserve, Old Forester and Jack Daniel’s. Southern Comfort is estimated to be worth around $700 million (£460m), but its sales have declined nearly 16% since 2011.
• America now has over 4,000 beer breweries and is close to its all-time record, according to the US Craft Beer Association. Bart Watson, the Craft Beer Association’s chief economist, said: ‘Given the strong pace of openings (an increase of 1.9 per day), it is likely that later in 2015, or early in 2016, there will be more active breweries in the United States than at any point in our nation’s history.’
Holidays & Leisure Travel:
• FirstGroup has updated on its Q1, saying its price increases and cost cutting measures are currently being offset by cheaper fuel and other factors. The mixed update shows that its US Greyhound division is suffering as the group commented: ‘Greyhound continued to experience the adverse effect on passenger demand of the sharply lower fuel prices since October/November 2014, and we are actively managing our cost base to mitigate the impact.’ Like-for-like revenue decreased by 5.7% in the first quarter in the period.
• First Group: Commenting on the rest of the business, which includes its UK student, bus and rail divisions, Chief Executive Tim O’Toole said: ‘Overall trading for the Group during the first quarter was in line with our expectations and we remain focused on delivering further progress from our transformation plans. With three quarters of the current bid season concluded, First Student continues to achieve slightly higher average price increases than the prior year.
• First Group: ‘UK Bus delivered further growth with concessionary revenues moderating continued commercial passenger revenue growth, and we continue to take action to improve our cost efficiency on a market-by-market basis. We anticipate strong progress for the current year in our non-rail businesses, mainly from the First Student and UK Bus turnarounds, to largely offset the reduced size of our UK Rail franchise portfolio compared with the prior year.’ He adds ‘We are on track to meet our financial objectives through our multi-year transformation plans, and thereby return to a position of sustainable strong cash flow and value creation.’
• The European hotel sector has seen its volume of transactions reach €12bn in the year to date, according to Charles Human of HVS. Speaking at the Hotel Investment Conference Europe at London’s Jumeirah Carlton Tower, he added that UK had seen the biggest number of deals, with its €6.8bn representing 55% of total European volume.
• A Travelzoo survey of 2,000 adults finds that more than half of Brits are avoiding popular winter sun hotspots in favour of ‘safer’ destinations. Britons felt most secure travelling to the Canary Islands, the Caribbean and Australia for a winter sun holiday this year, whereas Tunisia, Morocco, Egypt, Greece and Thailand are now some of the places that UK consumers are most afraid to visit. Over the next 12 months they would pick one of Italy, Spain, France, Portugal and the US.
• Former Tui and Airtours boss Chris Mottershead has been promoted to managing director of Thomas Cook UK. The move marks his second promotion since joining Thomas Cook as business development director in April. Alistair Rowland, travel services general manager at Midcounties Co-operative, said the retailer was ‘delighted with the appointment,’ claiming ‘it adds greater weight to tour operator knowledge within Thomas Cook, which will clearly quicken the progress of growth for years to come. They have a tour operator running a tour operator, which has got to help.’
• Carnival will bring high-speed wifi on board all of its cruise ships during 2016, with speeds set to be around 10 times faster than the current service.
• InterContinental Hotels Group has completed the sale of InterContinental Hong Kong to Gaw Capital Partners-led consortium Supreme Key Limited. IHG has received $929m in cash for the deal and will continue to manage the hotel under a long-term contract.
Finance & Markets:
• China factory PMI ahead of expectations, hits 49.8 from 49.7 in Aug. Any number <50 implies contraction, however. The Chinese government expects the country to grow 7% this year.
• IMF boss Christine Lagarde has warned on global growth + says she expects only a slow acceleration next year. Ms Lagarde said there was a risk of a “vicious cycle” being caused by higher US interest rates and the Chinese slowdown. She said ‘the good news is that we are seeing a modest pickup in advanced economies. The moderate recovery is strengthening in the euro Area; Japan is returning to positive growth; and activity remains robust in the US and the UK as well’ but adds ‘the not-so-good news is that emerging economies are likely to see their fifth consecutive year of declining rates of growth.’
• Ms Lagarde’s concern: She says ‘on the economic front, there is … reason to be concerned.’ She says ‘rising US interest rates and a stronger dollar could reveal currency mismatches, leading to corporate defaults… and a vicious cycle between corporates, banks, and sovereigns.’
• 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%. ECB expects inflation of around 0.1% for 2015 as a whole rising to 1.5% next year.
• Eurozone unemployment rate unchanged in August at 11%. Rates vary from <5% in Germany to >25% in Greece, 22% in Spain
• Nationwide reports house prices rose at annual rate of 3.8% in year to Sept, up from 3.2% in the year to Aug
• House price gap between London and provinces is widest ever says Nationwide. London c3.5x North of England
• UKGDP +0.7% in Q2 per further revision to numbers. UK current account deficit fell in Q2 to £16.8bn from £24bn in Q1.
• World markets: UK and Europe up yesterday, US up in later trading + Far East higher in Thursday trading
• Oil price up at around $48.80 per barrel
Retail Roundup from Nick Bubb:
Game Digital: Talking of new appointments taking effect today, we ought to note that the ex-House of Fraser FD, Mark Gifford, takes up his new position as Group Chief Financial Officer today and has just a couple of weeks to prepare for the interims on Oct 15th…His predecessor as FD of Game Digital, Benedict Smith, stepped down with effect from July 25th and went in straightway as the new FD of Hunter Boot.
FNAC Watch: Having noted the surprise bid for Darty yesterday, we must confess that we didn’t realise that although FNAC is a cultural institution in France (its first store opened in Paris in 1957), it is, in fact, now a freestanding quoted French company. Having been a subsidiary of the French retail conglomerate PPR for many years, FNAC was spun off a couple a years ago and had a market cap of Eur 880m before its ambitious £533m all-paper swoop on Darty at 101p…
Today’s Press and News: With Sainsbury, Topps Tiles and Darty all in focus on the retail beat yesterday, there is again a lot for the papers to chew over today, with the upbeat Sainsbury update taking pride of place, given the huge short squeeze in the Food Retail sector yesterday. But there was other news out as well, with the much-awaited new job for former M&S Clothing boss John Dixon turning out to be the Aussie department store group David Jones and Reuters picked up comments from the Chairman of Tesco at yesterday’s EGM (to approve the disposal of the business in South Korea) that appeared to rule out any more disposals (despite the recent rumours about selling Central Europe)…
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:
Late night operators:
• Revolution and Eclectic seem to be singing from the same hymn sheet.
• Put in capex where necessary, focus on food, trade only over profitable day slots etc.
• And that’s all good stuff but, in a sector with a significant number of very professional and successful operators, would-be investors may put their money elsewhere and consider that they do not need to be invested in this sub-sector at all.
Summer for the tour operators:
• It continues to look good. Saga today added its voice saying ‘we have made good progress again in the first half of the year in travel and in the year to date our reservation levels for departures in holidays and cruising for the remainder of this financial year and for the financial year ending 31 January 2017 are very encouraging.’
Sainsbury Q2 conference call – comment on inflation & big-ticket vs small-ticket:
• SBRY commented earlier in the year (along with many other operators) that big-ticket spending was outstripping spending on affordable treats & small-ticket items in general. Today, the group said that car sales and house sales were still buoyant & that it was ‘fair to say that they were not yet benefiting fully from the consumer recovery’.
• Commodity prices are the most volatile the group (or at least the group’s current management) has ever seen.
• Disposable income has risen – but the group is now pointing to a 12mth to 18mth lag before spending trickles down to small ticket items. This is subtly different to the 9mth / end-of-this-year comments that were being made early in 2015.
• Group says it is not yet seeing any Q on Q LfL growth. It sees ‘very little’ by way of inflationary pressures. Deflation ‘should abate this quarter (Q4/15) or early in 2016’. It confirms this is a reiteration of its previous comments.
Sainsbury Q2 – impact of NLW on both costs & consumer spending patterns:
• Group is ‘ahead of the curve’ in terms of National Living Wage. Wages will be at or around the Chancellor’s target by the time that the NLW comes into force.
• It’s still hard to pass cost increases on to customers – hence the above, unless things change, could impact margins.
• The NLW will boost incomes for the less-well-off. The propensity to spend here is high. The move could, just could, lead to a reverse of the trade-off between time & money that has seen people shopping ‘little & often’ in order to avoid waste, etc.
Sainsbury Q2 – general points:
• Group sees a ‘moderate uptick’ in KPIs. It says some of this is market-related but most is company-specific. It says this is not yet growth but is rather a moderation of decline. It is seeing an improvement quarter on quarter – ‘and at some point the line should go through zero’.
• C-stores are ‘slightly ahead of zero in terms of LfLs’. They did see something of a slowdown over the summer.
• Cost savings will be ahead of he previously-stated £200m p.a.
• Deflation this quarter is between 1.5% and 2% (it was c2% in Q1). This should ‘at least begin to unwind’ in Q3 & Q4 (given what happened re falling prices in these quarters last year). This will clearly be impacted by any changes in exchange rates.
• The level of promotional activity across the market ‘has reduced’. Much of this has been passed on in lower prices. Group tends to ‘put the value back into the product’.
• Aldi & Amazon entering the online market? SBRY says that they face a challenge in delivering fresh food. Says the market is already served by ‘six, very professional firms’.
• Re space-closures? Not anticipating any major closures.
Random information, hopefully not all of it useless (re most leisure operators etc.):
• Sterling down against both US$ and Euro. Not so as you would notice at the moment but, if this were to go on, it would put a little upward pressure on prices.
• Heating oil prices higher. Everything is relative but it may be worth bearing in mind.
• Markets in a much better mood today – but the China PMIs are tomorrow & they have the capacity to put the cat amongst the pigeons
• Stonegate continues to bulk up. Markets may be a little volatile at the moment but some observers have suggested that an IPO may be on the cards. And if they haven’t, then Langton will – an IPO may be on the cards.
• Interesting to see the monthly GFK Consumer Confidence Index refer to a ‘depressed back-to-school mood’ among consumers despite low inflation and rising wages.
• Reminder – Plastic bags at supermarkets etc. will cost 5p from Monday.