Langton Capital – 2015-10-02 – M Clark, Diageo, Chinese visitors, world economy & other:
A Day in the Life:
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I think that I have a lot in common with President Obama.
There’s the year of our birth and our smouldering good looks, of course, but I was particularly thinking about our burden of responsibility, the decisions that we make from day to day that influence the lives of either a greater or smaller number of those who live around us.
Mr Obama, for example, may have to decide whether or not to face off against the Russians in the Middle East. And he may have to lean (or not lean) on the Federal Reserve Bank in order to influence its policy towards interest rates and hence rates globally, exchange rates and the like whilst I, yesterday, had to make the executive decision to throw out a stapler.
A decision that I didn’t make likely because, though it looked good and wasn’t very old, it had a bad habit of half-stapling things and of leaving jagged, world-peace-threatening shards of metal jutting out from apparently safe stacks of paper and, above all else, I am incredibly mean.
But make the difficult decision I did. Ah, the burdens of office. Well, with the mist closing in around us, the sun set to shine all weekend and England likely to exit from the Rugby World Cup, let’s move on to the news:
Pub, Restaurant & Drinks Producer News:
• Punch Taverns received shareholder approval yesterday to proceed with the sale of its 50% share of Matthew Clark to Conviviality Retail. The latter reported re its own enlarged share base that ‘admission of the Enlarged Group to trading is expected to become effective tomorrow, Friday 2 October 2015, which is the final condition of the acquisition. Subsequently, completion of the acquisition is expected on Wednesday 7 October 2015.’
• BBPA has ‘expressed concerns over proposals from the Institute of Licensing to create a ‘standard pool’ of licensing conditions for pubs and other licensed premises and is opposing the concept.’ It says that it believes that such a standard list ‘could encourage the wholesale application of such conditions rather than considering each case on its merits.’ CEO Brigid Simmonds comments ‘I hope that the Institute of Licensing will listen to our concerns. While the proposals do attempt to highlight that blanket conditions are not appropriate, this itself shows the inherent problems with the approach they are trying to adopt. I hope they will think again and reassess the fundamental principles of what is being proposed. Pubs need less regulation rather than more. Conditions should only be applied to a Premises Licence when absolutely necessary and they must
• Fourth Hospitality Customer Conference re expansionary plans: Steve Richards revealed at the latest Fourth Hospitality Conference that CDG-owned Café Rouge, Bella Italia and Las Iguanas could grow to 600 sites. The Casual Dining Group CEO said the aim was to open 150 Las Iguanas, 150 Café Rouges and 300 Bella Italia units. Richards said the group has a pipeline of 27 new sites to open during the year to May 2016 and another 23 units for the following year. The CEO also revealed a new Pret-inspired ‘Rapide’ concept for CDG’s Café Rouge stores.
• CGA Peach’s Peter Martin commented on the big Leisure themes of 2016, commenting on the rise of street food both in London and around the world. Speaking at the Fourth Hospitality Conference, Martin warned that operators need to be ‘streetwise’ and street food and that the average UK consumer was turning into an ‘experience junkie’. Other trends he pointed to were premiumisation and increasing site sizes. Fast-growing food hall concept Eataly spoke later at the event of its upcoming introduction to Selfridges.
• More from Peach: Martin said: ‘Street food is a real phenomenon. There’s no doubt we will see street food grow. We have got to get more streetwise about what is going on in the market. Is it the food? Is it the drink? Is it being outside? I think it’s the whole package – it’s the experience. The experience is a driver of many successful brands, not just in the street food market. Brands like Turtle Bay for example do this very well.’
• Diageo is to ‘future-proof’ its brands by improving its marketing to female consumers so that its drinks can become ‘unisex cultural icons’.
• Brewdog has raised more than £10m with its Equity for Punks IV, writes Propel. The company said: ‘So we have let fly a wrecking ball in that direction, to the tune of over double the amount. So make that two wrecking balls. And we are not finished yet. Every penny raised will be invested in our business to help grow BrewDog for those who have become shareholders.’
• The National Minimum Wage has increased from £6.50 to £6.70 for adults, from £5.13 to £5.30 for 18-20 year olds and £3.79 to £3.87 for 16-17 year olds.
• The government will implement its new mandatory National Living Wage for workers aged 25 and over at £7.20 in April 2016. The move represents a 50p rise from the new national minimum wage rate.
Holidays & Leisure Travel:
• A collection of UK retail and tourism businesses is calling on the government to automatically offer 10-year tourist visas to Chinese visitors. The UK China Visa Alliance (UKCVA) has found that such a move would boost annual visitor numbers from China by almost 265,000 a year and bring in about £337 million in additional revenue for UK businesses.
• Starwood Hotels is considering making a significant investment in Africa over the next five years. The business could open around 16 new hotels in countries including Nigeria, Senegal, Kenya and Egypt.
• The BHA has welcomed TFL’s decision to issue a second consultation to ‘modernise’ private car regulations on businesses like Uber. The move follows a recent petition from Uber, signed by 90,000 people, against a possible crackdown on its services.
Finance & Markets:
• World growth slows show latest PMI surveys. Growth lower in China, Far East, Europe with N America steady. Specifically, PMIs lower in China, Germany, UK but up slightly in US + France
• ONS figures show productivity across the UK increased at its fastest rate in four years in the second quarter of 2015. The news is tempered somewhat by two current surveys that show UK manufacturing has struggled to maintain its growth.
• Director General at the IEA, Mark Littlewood has told the Telegraph that Jeremy Corbyn’s proposed policies could harm the poorest.
• World markets: UK up, Europe lower (influenced by motor sector worries), US up and Far East higher in Fri trade
• Oil price little changed over last 24hrs at around $48.15 per barrel
Leisure – The Week Ahead
Marston’s has its Q4 on the Thursday 8th next week. The market will likely be expecting the group to outperform last week’s M&B trading update where LfLs were down 0.7% in the seven weeks to 12 September. The Rugby World Cup should help Marston’s recent trading at its franchised and tenanted pubs, with wet led sales likely to have been buoyed in recent weekas, however food led pubs will have been negatively impacted.
Gregg’s updates on Q3 trading on Tuesday 6th. The group’s shares have been incredibly strong this past year, and with LfLs up 5.9% at the interims in July investors will likely be expecting more good news next week.
Tesco has its interims on the Wednesday 7th. Sainsbury’s numbers led to a 14% rise in the group’s share price earlier this week, and saw the other food retailers also rise sharply as the group expects profit to be ahead of consensus. The pressure is arguably on Tesco to produce similar consensus beating news.
The UK Services PMI for September comes out at 9:30am on Monday 5th. August saw the rate of growth slowing for the UK Services PMI, with the index dropping from July’s rate of 57.4 to 55.6, the lowest level in two years.
New Car Registrations for September are released on Tuesday. The VW emissions scandal will likely impact sentiment and may see a short term dip in car sales, however sales have been strong recently, up 6.7% for the year August. Sainsbury’s had previously suggested that a small ticket spending uptick is due, though has suggested that the lag will be 12-18 months, suggesting the group expects and uptick for mid-2016.
Will Brumby – firstname.lastname@example.org
Retail Roundup from Nick Bubb:
John Lewis Sales Watch:
Waitrose Sales Watch: Over at Waitrose the going was a bit tougher, but “the Great British Bake Off and Rugby World Cup teamed up” to deliver a sales increase of 2.1% (excluding petrol), which would be broadly flat LFL. Waitrose also had a high profile store opening last week, but the only comment is that “courses at our new cookery school, which forms part of our new branch in King’s Cross, are already in huge demand”. Over the last 8 weeks Waitrose sales are now running 1.3% up in gross terms, which would be nearly 1% down LFL.
BDO High Street Sales Tracker: this weekly High Street sales index of medium-sized Non-Food chains organised by the accountants BDO is an interesting guide to underlying Fashion trading momentum (ex-Online) and sales have been notably poor in recent weeks, despite weak comps. September has been generally better, but BDO has reported today that last week, w/e Sept 27th, slipped back again, with overall Fashion store LFL sales down by 1.7% (against a comp of -1.9% LFL last year). Total store LFL sales were down by 0.6% (including Lifestyle and Homewares retailers) and overall Non-Store/Online sales were only up by 11.8%.
News Flow Next Week: The big event next week is the Tesco interims on Wednesday, but Tuesday brings a Greggs trading update and the Ted Baker interims, whilst the DFS interims are on Thursday.
Nick Bubb – email@example.com
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:
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, Scream & 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.