Langton Capital – 2015-10-08 – Daily Wrap: SAB Miller, Premier Foods, Tesco, interest rates & 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:
SAB Miller & AB InBev:
• The £42.15 cash bid is contingent on agreement from Altria & BevCo, board recommendation & satisfactory conditions from regulators.
• And the time value of money comes into it too but, with the shares sitting at >13% discount to the cash bid, the shares look a reasonable investment.
• Of course the bid may fall over but, as various commentators have pointed out, the negotiations could take place above the board’s head (with Altria & BevCo) and the rest could just be noise.
• Indeed management, for form’s sake, may be able to squeeze a few more pennies but, if Altria & Bevco take the (lower-priced) share alternative with a minimum 5yr lock-in, they are clearly in this for the long term and, if the share alternative was also tweaked, they would only be moving money from their left trouser pocket to their right.
• Disposals are clearly anticipated and, though the choice of buyers will be very limited, this should have been taken into account.
Premier Foods – a ‘cold weather’ stock?
• See earlier comments on depressed temperatures in July, August and September. So much for global warming.
• Nielsen numbers, reported by rival brokers, suggests that iced-cream (not a PFD product) had a poor summer but that other categories, sauces, curries, soups, custard etc. performed more strongly than they did a year earlier.
• Add to this cheap milk. Milk is the group’s largest single food ingredient and low commodity prices in general and you have another tail wind.
• Comps are easier and a glance (drop us a line) at the quarterly LfL sales numbers suggest that Q2 (the quarter to end-September) should be quite good.
• Supermarkets are ‘aligned’. However this is dressed up, it is good news rather than bad.
• Directors have been topping up share holdings at around these levels, debt should ‘come down materially’ this year and the company reports H1 numbers on 10 November…
UK interest rates:
• Since the US missed its employment numbers on Friday, there has been some speculation that Sterling interest rates could rise before those in the US
• Betting in both cases is now for around March 2016.
• Bank of England’s MPC (and minutes now combined on the same date) will be out at 12.00 today (this email is timed around 11am for clients, 4pm for others)
• This should be no-change to rates at 0.5% (where they have been since March 2009) and 9-0 or more likely 8-1 in favour of the above.
• There should be no change to £375bn QE.
• Some suggestion that UK rates could go either up or down by 0.25%. If they were to go down (a long shot) then Sterling would weaken appreciably.
Random information, hopefully not all of it useless (re most leisure operators etc.):
• Some respite for chocolate lovers as the price of cocoa has tumbled after recent rises.
• Further good news for chocolatiers as the price of milk remains at recent low levels. Somewhat delayed numbers for August show no recent recovery in prices
• Tesco’s shares turned around over it’s analysts’ meeting yesterday morning to reverse early falls. The stock finished as a FTSE100 top-ten riser, second only to Aberdeen Asset Managers as a non-mining winner.
• Travel stocks the big losers yesterday (IAG, EasyJet, Carnival, TUI amongst top ten FTSE100 fallers)
• Tesco: At the risk of repeating ourselves from this morning, just what is Tesco doing holding on to Giraffe?
• Tesco – see Nick Bubb comments re failure of directors to buy shares. Retail Week has channelled criticism at Dave Lewis for not purchasing shares in Tesco, particularly following Morrison’s boss David Potts’ decision to acquire a stake in the company that he now runs. Lewis says he and fellow board members have agreed to ban themselves from trading in Tesco shares. “We are in possession of quite considerable inside information about what may or may not happen in the Tesco group.” He goes on: “Add to that the regulatory review, which we have to deal with confidentially, and we as a board took a decision that while those things were ongoing, we would exclude ourselves from being able to trade Tesco shares.” Hum…
• Dart Group very strong, read across helpful for Thomas Cook.
We’re so 21st Century, this morning’s Tweets (diff. font size denotes importance):
1. 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.
a. So when is unanimous not unanimous? Well when the board is split, clearly. SAB now in dispute with some directors re bid
2. 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
3. Weather in Q3. Some companies (pubs with beer gardens) benefit from warm weather, others don’t. Weather in Q3 was worse than average.
a. 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
4. Coaching Inn Group makes double acquisition in Yorkshire. Group buys Golden Fleece in Thirsk + Feathers in Helmsley.
5. Constellation Brands Q2. Comp EPS of 156c and increases fiscal 2016 outlook ‘driven primarily by strong beer business results’
6. UK sales for KFC + Pizza Hut deliveries up 4% each in last 9mths. Yum’s UK business now c9% of all KFC sales + 6% of Pizza Hut sales.
7. English sparkling wine is more ‘energetic and vivacious’ in character than Champagne, according to CEO of Digby Fine English
8. Living Ventures is to invest c£7m over the next few years launching a number of its brands into fast-growing Birmingham.
9. 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
10. Dart Group updates on H1 trading, says ‘summer 2015 trading in our Leisure Travel business has been consistently strong’
a. Dart H1: Says ‘demand for our package holidays continuing to grow’ and says holiday numbers +21% on last year
b. Dart h1: Some 41% of passengers now on Jet2 holidays. Airline flew 4.53m customers, down 1.9% on capacity reductions
c. Dart H1: Logistics business ahead of last year, H1 profit ‘at least 60% ahead of the same period in the previous year’.
d. DTG: with winter looking OK it’s ‘apparent that Group performance for FY16 will materially exceed current market expectations.’
11. The IMF has warned that “global financial stability is not yet assured”. Says risk now in emerging economies.
a. NIESR says UK GDP up 0.5% in the quarter to end-Sept. NIESR estimates a revised +0.5% in Q2 as well
b. UK manufacturing up 0.5% in Aug after July fall says ONS. Car production up. New drove Sterling to 2wk high