Langton Capital – 2015-10-07 – Daily Wrap: SAB Miller, Tesco, oil prices, China & 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:
• AB InBev has broken cover at £42.15.
• Yet SAB’s share price has risen by only 44p (at the time of writing) to £36.66.
• This suggests that, on balance, the market does not believe that the bid will succeed – at least not unless AB InBev manages to sharpen its pencil a little further.
• Post the publication of this morning’s email, SAB has responded saying that the proposal is still conditional and goes on to say that the board (of SAB) had already met on 5 October (to consider an actual £40 approach and also a then-theoretical £42 offer) and says ‘the Board, excluding the directors nominated by Altria Group Inc., also concluded that, even if AB InBev formalised the GBP 42 Proposal, it would reject such a proposal as it still very substantially undervalues SABMiller.’
• It says ‘it should be noted that the all-cash offer within the new proposal announced today (the “GBP 42.15 Proposal”) is only GBP 0.15 higher than the GBP 42 Proposal considered and rejected on 5 October 2015.’
• It adds ‘the Board will, of course, meet formally to consider the GBP 42.15 Proposal as soon as practicable and a further announcement will be made thereafter’ but the mood music is not conducive to a Board agreement.
• SAB chairman Jan du Plessis says ‘SABMiller is the crown jewel of the global brewing industry, uniquely positioned to continue to generate decades of standalone future volume and value growth for all SABMiller shareholders from highly attractive markets. AB InBev needs SABMiller but has made opportunistic and highly conditional proposals, elements of which have been deliberately designed to be unattractive to many of our shareholders. AB InBev is very substantially undervaluing SABMiller.’
• If AB InBev intends to remain in the game then, unless there is something of an outbreak of disingenuity going on, it will need to come back with a higher number.
• And the fact that SAB’s share price is sitting at a 13% discount to the proposed offer, suggests that money is being bet on this not happening.
• More on the analysts’ meeting tomorrow.
• Interesting to note that ‘investing in the customer offer’ (10 syllables) has overtaken ‘price cuts’ (2 syllables) across retailing in general.
Ex post facto analysis:
• As any good General is likely to agree, it’s not easy to discern what’s going on from the midst of the action.
• Therefore, when analysts tell the press & the press tells the rest of us that oil prices rose because stocks fell or Tesco’s shares are down because the tone was a little less upbeat than had been hoped, this should maybe be taken with a pinch of salt.
• Because markets can fall on a strong oil price and they can rise on a strong oil price and to suggest causality may be a little misleading.
• This is one of the – if not the – largest market in the world and it’s not helpful to the ‘perfect market’ theory if the price doubles and halves a couple of times over a short period of time
• Of course, there is an opposite argument. One that suggests that the spot price of oil should approximate its value (determined by supply & demand) over an infinite time period and, as growth expectations rates are tweaked by a few basis points into the never-never, that justifiably has a massive impact on today’s price.
• Well that’s as maybe.
• But Iran is back in the market, China is slowing down and shale oil is being drilled (or mined, or whatever) suggesting that the fundamentals haven’t changed a great deal over the last few weeks.
• Yet yesterday the oil price did bounce markedly. This means little in the very short term but, if maintained and developed as a part of a wider commodity-price-firming, it will have an impact on costs, pricing, etc.
• YUM Brands was hammered overnight on an earnings miss.
• It is recovering from a bad-meat scandal last year (in China) but says the recovery is behind expectations.
• It says it is being impacted by the more general China slowdown.
• Whitbread now has a material Costa operation in China. It updates on trading on 20 October.
Random information, hopefully not all of it useless (re most leisure operators etc.):
• Tesco. There’s a lot going on. Shares down at first then rallied over the 9am meeting. Numbers poor (but expected) but the tone of the meeting was supportive.
• M+B / RTN merger? MAB may feel the need to do something but, if the groups were already merged, we could think of more reasons for de-merging than for putting the enlarged business together in the first place.
We’re so 21st Century, this morning’s Tweets (diff. font size denotes importance):
1. Anheuser-Busch InBev proposes new terms for SAB Miller takeover, says will ‘Build the First Truly Global Beer Company’.
a. AB bid: Says ‘Combination Would Create One of the World’s Leading Consumer Products Companies’. Plenty of capital letters there
b. AB bid: Proposes paying 44% premium (to pre-rumour price) with a partial share (some cash alternative) at 28% premium
c. AB bid: Had approached at £38 and £40. Has organised financing, proposes paying £42.15 per share in cash.
2. Tesco H1 shows signs of improvement in Q2. UK transactions rose 1.5% and volumes were up 1.4%.
3. Diageo: Sells interest in Desnoes + Geddes and in Guinness Anchor Berhad to Heineken + bought additional shares in Ghana Breweries
4. Re-run stories yesterday suggesting that M+B should merge with Restaurant Group. Certainly the former is at something of a crossroads
5. YUM Brands’ shares, owner of KFC, Pizza Hut, Taco Bell, fell by >17% last night after a Q3 numbers miss
a. YUM misses numbers. Says now expects LfL sales in China to be ‘low-single-digit negative’ + FY EPS growth low-single-digit positive
b. YUM Q3: Basically hit by slowing China and negative currency comps. Recovery from food scandal overwhelmed thereby
6. Argos has intensified delivery competition with a move to offer same-day delivery up to 10pm, 7dys per week
7. Matthew Clark: Both Punch Taverns + Conviviality Retail have reported that the transaction has completed
8. PepsiCo saw organic revenue rise 7.4% although net revenue fell 5% due to adverse currency translations in its Q3
9. Eclectic Bars reports has cancelled some options + re-granted at ‘an exercise price commensurate with the existing price’.
10. BRC shop price index registered drop of 1.9% on an annual basis in Sept. Was down 1.4% in Aug
11. John Waterworth, boss of Parkdean, is to be CEO of the combined Parkdean/Park Resorts UK holiday parks business
12. Easy Hotel has updated on FY trading saying year ended with trading in line with the Board’s expectations
13. Oil price sharply higher. Trading at $52.20 on lower US stockpiles + reduced concerns re China slowdown