Langton Capital – 2015-10-05 – Dining trends, private equity, world economy & other:
A Day in the Life:
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So whilst England’s Rugby World Cup does have echoes of the football team’s exit from the 2014 (proper) World Cup about it, it’s hard not to feel a degree of sympathy for the players involved.
Because, in a knockout competition, for every ultimate winner there are 15 or 31 or whatever also-rans (a.k.a. losers) and the bubble in which the teams have been cocooned probably really does leave the participants feeling that the world will no longer spin on its axis simply because one bunch of blokes hoofed a misshapen ball around a grass field a little more efficiently than did another.
And in the world of finance, some (though not most and certainly not all) clouds have a silver lining in that the nation’s food-led pubs, its restaurants, its cinemas, bowling alleys, short break holiday parks and the like should see a tick up in business – or at least avoid the dip in business that they would otherwise have seen. And for the wet-led elements of Marston’s (big in Wales) and Greene King (big in Scotland) there’s still some mileage to be had so chins up men, on to the news:
Pub, Restaurant & Drinks Producer News:
• Lynx Purchasing urges operators to hold their nerve on Xmas pricing. Says lower prices should feed through. Lynx says ‘most hotels, restaurants and pubs have their Christmas menus in place by now and hopefully, bookings starting to fill the December diary.’ It goes on to say ‘the temptation is to agree the prices being quoted by wholesalers and suppliers in order to secure supplies of core festive menu items. However, with inflation low, and producers benefiting from lower feed and transport costs, we think there’s definitely scope for some old-fashioned haggling.’ It concludes ‘in the current market, it’s only fair that producers, wholesalers and operators spread the upside and each take their share of the opportunity presented by good quality, price and availability on Christmas turkeys, as well as other seasonal menu staples such as ham
• Telegraph suggests younger consumers eat out more ‘because they don’t know how to cook’. It’s simply lower down list of things to do. The BBC’s Good Food magazine has reported that a large chunk of the £63.65 per week that 16-24yr olds spend on food is spent on takeaway meals.
• DP Poland has opened its commissary after passing its inspection in Poland and can provide the ingredients for as many as 50 stores going forward. The site was capex-light to build, costing around £300,000, and can be expanded to cater to 100 units as the company grows. DP Poland currently has 19 stores and is expanding into its third Polish city.
• FT suggests private equity still has appetite for more restaurant deals. It points to recent transactions, says more to come. Deals transact either based on the value of the brand’s rollout potential or, as in the case of La Tasca, for the location of its sites. Casual Dining Group there plans to convert 20 to 25 of its 40 sites into another concept, perhaps Bella Italia. The FT says recent deals ‘are part of a frenetic period of merger and acquisition activity in the UK restaurant sector.’ Re pricing, it quotes on senior PE investor as saying ‘valuation prices are full’. The investor adds ‘casual dining is cyclical and valuations run between six to seven times and 10 times earnings. People paying more than 10 times for leasehold companies is pricey. Owning Côte and not doing anything to it would be hopeless.’ However, it takes two to make a
• England’s rugby exit not all bad news. Wet led pubs will suffer (or at least lose the upside) whilst food led operators will be relived.
• ABInBev deal meant to be ‘this week’. Again.
• Carrier bags now cost 5p in England.
• Guardian unearths Wahaca as the latest operator to have a tips policy worthy of comment.
• A new Walkabout site has opened in Solihull following a £485,000 investment, bringing iNTERTAIN’s total number of Walkabout bars to 24.
• Cider sales in UK convenience stores could be worth more than supermarket sales by 2020, according to the IRI. Sales of cider in the UK off-trade fell by £35m in the year to 15 August, with summer sales failing to match expectations. Sales of fruit flavour ciders continued to rise, up 23% to £45m. Kopparberg is now the UK’s second bestselling cider, with sales of £112m in the last year.
• Winemaker Treasury Wine Estates is considering a bid for California-based Sterling Vineyards, which is owned by Diageo.
• London Pub Company Remarkable has partnered with street food operator The Bell and Brisket at its Shoreditch pub, The Barley Mow. Remarkable’s MD Elton Mouna said ‘Linking with the street food phenomenon is a natural fit for Remarkable’.
• Morrisons is winding down a scheme to price match Aldi and Lidl in favour of a loyalty card scheme, suggesting UK supermarket competition is easing. Tesco announces interim results on Wednesday and it will be interesting to hear whether David Lewis echoes Sainsbury’s and Aldi’s recent comments of easing price-cutting pressures.
• Italian tomato products brand Cirio, owned by Conserve Italia, has teamed up with fellow Italian Antonio Carluccio. The TV chef, who founded Carluccio’s, will perform PR and advertising duties in the UK and Australia.
• The European beef sector performed ‘robustly’ during the summer, despite the ongoing Russian trade embargo, according to Rabobank analysts. The drop in exports to Russia resulting from sanctions against the EU and other Western countries, was ‘more than compensated for by higher volumes to all other markets’ and strong domestic demand.
Holidays & Leisure Travel:
• Sir Richard Branson has weighed in on the Uber debate, telling London’s taxi businesses to ‘accept’ that there is a new model. The Virgin owner said that clamping down on the taxi service app would hurt UK consumers and taxi drivers must either ‘embrace it or change what they are doing’.
• Coca Cola, McDonald’s and AB InBev have demanded that Sepp Blatter immediately step down as president of FIFA. The group – three of the largest World Cup sponsors – have been joined by Visa in calling for Blatter to quit after becoming the subject of a criminal investigation.
Finance & Markets:
• US payroll growth has slowed over the last two months, casting doubt on rumours of a rise in interest rates by the end of this year. The Labor Department said payrolls outside of farming rose by 142,000 last month and August figures were revised lower to 136,000 jobs, leading Wells Fargo portfolio strategist, Brian Jacobsen, to comment: ‘You can’t throw lipstick on this pig of a report’.
• World markets: UK markets up Friday. Europe and the US too with Far East up in Monday trading.
• Oil little changed at $48.30 per barrel.
• World Bank cuts Asia Pacific growth forecast. But everything’s relative, cutting only to 6.5% this year + 6.4% next. World Bank says ‘developing East Asia’s growth is expected to slow because of China’s economic rebalancing and the pace of the expected normalization of US policy interest rates.’ No real surprises there.
• IEA says Corbynomics could be immensely destructive. Says we need to learn from past. Mr Corbyn may say that’s what he’s doing
• Greek PM Alexis Tsipras has said Greece must enact its bailout programme quickly if it is to regain access to market financing. Tsipras said he aimed to complete the first review of an 86bn euro bailout agreed in August so Athens could open negotiations with euro zone partners on debt relief. The country will have to push through reforms of taxation, pensions, healthcare, the financial sector and public services by 15 November to unlock the next tranche of aid to help recapitalise its banks.
• The FT reports that prices for London’s most expensive properties have fallen in the year to August following a rise in stamp duty. The central London market has been flat in the three months since the election, with stamp duty on properties worth more than £1.5m now 12%.
Langton Food Retail Index – The Grocer’s Dozen
Sainsbury’s positive second quarter trading update led the FRI 0.88% higher for the week to 2 October as the index outperformed the FTSE by over half a percent.
Sainsbury’s (+13.76%) produced a resilient Q2 update, revealing that they expect ‘FY 2016 underlying profit before tax to be moderately ahead of our published consensus (FY consensus PBT: £548m).’ The upbeat tone of the results prompted positive reactions in the share prices of Tesco (+7.23%) and Morrisons (+4.9%).
The group’s LfL sales ex. fuel were a better-than-expected -1.1% for the 16 weeks to 26 September and cost savings were also ‘ahead of expectations’. Shares rerated to 259.3p and around 12.3 times forecast earnings on the news.
As for wider industry comment, the group is currently seeing ‘very little’ by way of inflationary pressures but believes deflation ‘should abate this quarter (Q4 2015) or early in 2016’.
Meanwhile Ocado has had a turbulent time, with its shares up 2.27% to 327.24p having fallen 7.23% the previous week on the announcement that Amazon’s grocery delivery service, Amazon Fresh, has gone live in Birmingham. The internet giant intends to launch the service across London in the coming months with a view to a national rollout early next year.
Commentators have also suggested that the Amazon Fresh push is paving the way for Amazon’s ‘Dash’ technology, which exploits the internet of things and will allow smart objects to talk to each other. Dash will enable everyday items such as fridges and printers to ‘talk’ with Amazon and order their own items automatically when they are running low.
Poundland shares were up 1.24% to 278.71p. The single-price retailer saw its share price tank by 14.29% the previous week after warning of a lower first half profit forecast due to tough comparables and higher store pre-opening costs.
The group completed its acquisition of 99p stores’ 251 sites for £55m (£51.5m in cash and £3.5m of new Poundland shares) on 28 September and said of its integration plans: ‘[We] will immediately add our support to 99p Stores going into our most important trading quarter from Halloween through to Christmas, after which we will turn our focus to rapidly converting the stores to the Poundland formula. We expect to have the vast majority of stores converted in the next 12 months.’ Jack Brumby – email@example.com
Retail Roundup from Nick Bubb:
Grocer 33 Watch:
News Flow This Week: The big event this week is the Tesco interims on Wednesday, but tomorrow brings a Greggs trading update and the Ted Baker interims, whilst the DFS interims are on Thursday. And this evening Majestic Wine is holding a wine tasting for analysts in the City. Nick Bubb – firstname.lastname@example.org
This was produced for distribution Friday 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:
• At yesterday’s Fourth Conference, CGA Peach’s Peter Martin reaffirmed a number of trends that we have commented on recently. He believes:
o Artisanal craft beer has been ingrained in the people’s psyche.
o Theatre is important, people wanted to be excited, ‘wowed’.
o Authentic fruit and vegetable juice bars are on the up, ‘health’ as an issue is here to stay
o The majority of growth is coming from branded restaurants moving outside of London ‘without a shadow of a doubt’.
o We believe that fastest growth is coming from new entrants. Mr Martin suggests the same, saying that those with fewer than 25 sites are the most dynamic players
Casual Dining Group:
• Over 50% of Langton attended the Fourth Hospitality Conference yesterday and very informative it was too, thanks to all involved.
• CDG’s Steve Richards spoke, saying that he would like to double the size of his business over the next 2yrs.
• Without a burger, chicken or pizza offer, that’s quite a task.
• Perhaps aiming for 300 Bella Italia outlets is a shade ambitious but, as new entrants continue to shake up the market, there may be more acquisition opportunities around going forward.
• The ‘rapide’ concept (Pret-style takeaway at Café Rouge could increase sales, though it is unclear whether would-be customers will be willing to pass half a dozen Pret & EAT stores in order to get to a Café Rouge.
• However, Mr Richards was able to point out that debt was now only 2.5x EBITDA and he said that capex (‘oxygen for an expanding business’) was back on the table.
• Bella is reported to be set to open in Mumbai in the near future.
• Perhaps in the same way that we expect an IPO from Stonegate in the next couple of quarters, a listing by CDG is by no means unlikely
Random information, hopefully not all of it useless (re most leisure operators etc.):
• Red meat prices on the slide. Prices at 1yr lows, down 26% on year.
• Corn & wheat prices up a little & sugar showing first signs of life for over a year.
• Food retail shares giving back a little of their recent gains.
• European economy. There’s a ‘broad softening’ of the recovery going on. However, the only Euro manufacturing PMI now <50 (i.e. implying contraction) is that in Greece.
• Waitrose seems to be having a less good time of it. See Nick Bubb comments in earlier email. Looks as though the group is about flat in terms of LfL sales for its week 8 (week to 26 September) but it’s down around 1% LfL for the cumulative 8wk period to date.
• Amazon is set to shake up the grocery delivery market promising one-hour deliveries. It is currently trialling the service in Birmingham for its Prime customers. Sainsbury yesterday suggested that Amazon would have its work cut out if it thought that it could dislodge the incumbents.
• Fourth Conference: CGA Peach’s Peter Martin may have managed to upset the best part of 5m people when he opined that ‘Birmingham is the new Manchester’.