Langton Capital – 2015-10-08 – AB/SAB, Constellation Brands, Dart Group & other:
A Day in the Life:
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So how do you explain English spelling to a nine-year old?
I mean why are there two LLs in actually and only one in probably? Is it because in one the letter(s) follow a vowel and in the other they don’t? But isn’t that a bit mealy mouthed?
And is I before E except after C? Well sometimes it is and sometimes it isn’t. in fact I’m reliably told that there are more words where the rule doesn’t apply than where it does.
I mean look at either, neither, leisure, height, weight and the like. And consider science, sufficient, species etc.
And then why are in-laws and out-laws not opposites? And why do flammable and inflammable mean the same thing? And why do some words have an E and the end and others don’t.
I mean come on guys. This is like making the A1079 between York and Hull into a dual carriageway – why wasn’t it sorted out years ago? On to the news:
Pub, Restaurant & Drinks Producer News:
• AB/SAB Miller: SAB formally rejects £42.15 offer + AB InBev admits that it does not (yet) have support of BevCo, SAB’s #2 shareholder.
• So when is unanimous not unanimous? Well when the board is split, clearly. SAB now in dispute with some directors re bid. It reported ‘the Board of SABMiller has now met formally to consider the new proposal announced by AB InBev today…The Board, excluding the directors nominated by Altria Group Inc., has unanimously rejected the GBP 42.15 Proposal as it still very substantially undervalues SABMiller, its unique and unmatched footprint, and its standalone prospects.’ It added rather unnecessarily ‘this statement is being made by SABMiller without the prior agreement or approval of AB InBev.’
• So Tesco was in the news yesterday but tell me, why does it still own Giraffe. Maybe it’s just not got around to selling it yet
• Weather in Q3. Some companies (pubs with beer gardens) benefit from warm weather, others don’t. Weather in Q3 was worse than average.
• Temperature in July some 0.7 degrees below long term average (that’s a lot), August 0.2 degrees below and September 0.8 degrees off norm. This is not helpful for iced cream sales, sun tan lotion manufacturers and beer gardens but it’s good news for overseas holiday companies, indoor attractions and food companies such as Premier Foods, which are big into sauces, custard, cakes and the like rather than warm weather frippery.
• Coaching Inn Group makes double acquisition in Yorkshire. Group buys Golden Fleece in Thirsk + Feathers in Helmsley. The group says this is a part of its £20 million expansion programme. It says ‘the off-market deal, worth more than £5 million, sees the Group purchase two landmark North Yorkshire Inns, The Golden Fleece in Thirsk and The Feathers in Helmsley, from Homfray Hotels, bringing the Coaching Inn Group estate to ten sites and more than 300 bedrooms.’ MD Kevin Charity reports ‘awareness of our acquisition plans is enabling us to have a number of off-market meetings in the coaching inns sector. This deal was the result of one of those discussions and fits perfectly with our expansion plans.’ The group says that ‘we plan to invest in both sites in the New Year, but for now we look forward to working with the existing, highly successful management
• Constellation Brands Q2. Comp EPS of 156c and increases fiscal 2016 outlook ‘driven primarily by strong beer business results’. Group says its expansion plans are proceeding as planned. It adds ‘during the second quarter, Constellation’s beer business represented 45% of total U.S. beer industry volume growth in IRI channels and posted its 22nd consecutive quarter of volume share gains.’ It says ‘these stellar results were powered by the continuing success of our two largest brands, Corona Extra and Modelo Especial.’
• UK sales for KFC and Pizza Hut deliveries have increased by 4% each in the last nine months. Yum’s UK business now accounts for 9% of all KFC sales and 6% of all Pizza Hut sales.
• London Pride has won the Gold Medal for Overall Ale at the Stockholm Beer and Whisky festival in Sweden.
• Charnwood Pub Co has appointed Matthew Phillips to market its pubs.
• English sparkling wine is more ‘energetic and vivacious’ in character than Champagne, according to CEO of Digby Fine English, Trevor Clough. He said that the UK has ‘got the weather, soil and terroir to produce amazing wines. We need to take English sparkling wine around the world and in order to do so, we need to stick to our guns on quality. It’s a very collegiate atmosphere here, everyone has been very welcoming of us. We need to grow the industry together and be smart about it. I think a collective name for English sparkling wine is more of a risk than anything – it risks turning it into a commodity, but retailers might think it’s a good idea.’
• Black Sheep Brewery reduced pre-tax losses to £34,340 in the year to 31 March 2015 on the back of a 6% sales rise to £19.5m.
• Propel writes that Paul Theakston, the founder of the Yorkshire brewer, is ‘bewildered and amazed at how much the beer market has changed in the last three or four years,’ adding: ‘The model for the business we started all those years ago, three or four brands of beer into the on and off trade and taking advantage of the volumes available through the big pub companies, has now gone. With 1,400 or so small brewers taking a rapidly increasing share of the cask market with their duty pricing advantage and their wide range of interesting beers, the mid-sized longer-standing cask brewers compete with one hand firmly behind their backs. The regional brewers we all know and love are doing well, but mainly because of their skill in developing their long-standing tied estates. With no such estate to support us, we are at the sharp end of the need to change and adapt to
• Ed Passey, former group operations director of Risk Capital Partners-backed Red Hot World Buffet the, has joined Punch according to M&C. Passey had been at the seven-strong group since late 2013 and will now become a regional operations director for Punch Taverns.
• Living Ventures is to invest c£7m over the next few years launching a number of its brands into fast-growing Birmingham. The Alchemist and Gusto Restaurants are set to make their debuts in the city’s Colmore Row next year.
• The restaurant and bar operator has more than doubled gift card sales thanks to an online solution developed by Airship. The platform allows customers to choose physical cards which can be loaded with funds, and electronic cards delivered by e-mail.
• Pizza Pilgrims will open its third site, and first in East London, at Exmouth Market in November, with Dirty Burger in talks to open opposite. The M&C writes that the Pizza Pilgrims site will be 40-covers across two floors.
• Hot Copper Pub Company has acquired the freehold of the Goat in Southampton from Cerberus and the head lease from Punch. The Puma Investments-backed group is working with Brewhouse and Kitchen on managing the site.
• Kris Gumbrell, chairman of Brewhouse and Kitchen, commented: ‘We are still actively looking for more opportunities, by the year end we will have 9 fully operational B&K branded pubs with a further two under development and due to reopen in the Spring of 2016. We have had a transformational year and I am extremely proud of the team’s achievements, everyone has worked really hard and we are looking forward to 2016 in anticipation of acquiring further opportunities to build B&K into an authentic and innovative leading pub brand.’
Holidays & Leisure Travel:
• Dart Group updates on H1 trading, says ‘summer 2015 trading in our Leisure Travel business has been consistently strong’
• Dart H1: Says ‘demand for our package holidays continuing to grow’ and says holiday numbers +21% on last year
• Dart h1: Some 41% of passengers now on Jet2 holidays. Airline flew 4.53m customers, down 1.9% on capacity reductions
• Dart H1: Logistics business ahead of last year, H1 profit ‘at least 60% ahead of the same period in the previous year’. Group adds ‘increased losses are expected in the second half as a function of the expansion of our seasonal Leisure Travel operations.’ This is perfectly normal.
• Group adds with winter looking OK it’s ‘apparent that Group performance for FY16 will materially exceed current market expectations.’
• Monarch’s new single brand strategy will see Cosmos Holidays, Avro and somewhere2stay.com all operate under the Monarch banner. The Cosmos name will continue to be used by Cosmos Tours, which trades as Cosmos Tours and Cruises, a separate company not a part of last year’s rescue of Monarch by Greybull Capital.
• UK Hotstats has found that hotels in the North West had a strong summer despite the weather, with a 5.2% rise in RevPAR to £56.69. The improvement contributed to a 6.3% increase in GOPPAR for hotels in the North West. Cities such as Manchester and Liverpool continue to attract strong trade in the region.
• Hoteliers in Budapest saw 21.6% RevPAR growth this month, which contributed to an increase in GOPPAR of 20.5%, according to Hotstats. A healthy tourism trade and more quality hotels in Hungary’s capital helped push occupancy in the city to 92.6% and the country as a whole has seen a 12.5% increase in visitor numbers.
• Scottish Equity Partners (SEP) have appointed bankers to consider the sale of a 10% stake of Edinburgh-based Skyscanner. The flight comparison company could be valued at as much as £1bn.
• Luton airport posted a 19.2% rise in passenger numbers for September compared to the same period last year. Some 1.2 million passengers passed through in September, marking 18 months of consecutive growth, and the airport is investing £100m to take its annual capacity from 12 million to 18 million by 2026.
• Ladbrokes has announced the appointment of Kristof Fahy as chief marketing officer, who leaves as CMO of Telegraph Media Group. Ladbrokes CEO Jim Mullen said of the appointment: ‘Kristof has exceptional experience in our sector and a track record of delivery in the battle to attract and retain recreational customers. When I set out the Ladbrokes organic plan for building long term recreational scale and made the necessary budget commitment to boost our marketing presence, I was always conscious that I would need an experienced and creative marketing professional to lead the programme. In Kristof, I have recruited the right leader who can help us maximise our spend and grow the long term loyal customer base that will build a better Ladbrokes and deliver our long term targets and ambitions.’
• Sepp Blatter. AB InBev says ‘would be appropriate for Mr Blatter to step down’. Adds his presence is ‘an obstacle in the reform process’.
Finance & Markets:
• The IMF has warned that “global financial stability is not yet assured”. Says risk now in emerging economies.
• World markets: UK mixed yesterday, up a shade. Europe up, US markets higher but Far East lower in Thurs trade
• Oil price up in last few hours but down over 24hrs. Trading at around $51.50 per barrel
• NIESR says UK GDP up 0.5% in the quarter to end-Sept. NIESR estimates a revised +0.5% in Q2 as well
• Olivier Blanchard, former chief economist at IMF, says latest rescue programme for Greece won’t work if more austerity is imposed. He says ‘the fiscal consolidation asked of Greece in the next few years, is much smaller than it used to be, but still is more than is right’ and adds ‘you need structural reforms and growth or you do things half way, in which case I think the Greek programme may not succeed.’
• UK manufacturing up 0.5% in Aug after July fall says ONS. Car production up. New drove Sterling to 2wk high
Retail Roundup from Nick Bubb:
DFS and Dunelm:
Marks & Spencer Watch: This evening Marks & Spencer are holding an Autumn wine-tasting for analysts at their Paddington HQ and, after yesterday’s sharp share price fall, it will be interesting to hear the mood-music, even though the company is firmly in close season ahead of the interims on Nov 4th.
Beer Watch: Having flagged up the wine tasting by Majestic Wine for analysts on Tuesday evening, we should also report that Majestic Wine also sell beer…and that starting tomorrow Majestic Wine is holding a craft beer challenge in all its stores for a 3-day celebration of “Oktoberfest”.
Tesco Director Buying Watch:
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:
• 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.