Langton Capital – 2015-10-09 – Daily Wrap: SAB bid, home delivery, scorched earth & 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 / SAB Miller:
• This is going to run and run.
• Stories may be demoted to ‘random information’ at some point but, for the moment, the knockabout behaviour is fun to watch.
• He said, she said and, in the latest twist, SAB has this morning updated the market on its (new found and coincidental) ability to save more costs than had hitherto been anticipated.
• SAB says ‘SABMiller management is today meeting with investors to discuss its recent trading statement and to provide an update on its operations.’
• We bet it is.
• The bid will be front of mind and SAB goes on to say ‘as part of this, SABMiller announces that it has increased its target annual run rate cost savings from its cost and efficiency programme, announced in May 2014, from US$500 million by 31 March 2018 to at least US$1,050 million by 31 March 2020.’
• CEO Alan Clark says ‘our recent trading statement highlighted our accelerating growth in the second quarter. Another key plank of our strategy is to build a globally integrated organisation to optimise resource, win in market and reduce costs.’
• He adds ‘the measures we are announcing today are a continuation of our existing cost saving programme. Whilst we are already a highly efficient business with strong EBITDA margins of 38%1 across our 20 largest managed beer markets, we are continuing to remove duplication across markets, bringing specialist expertise in areas like procurement under one roof, and standardising common processes. It results in our markets being freed up to concentrate on what they do best – growing revenue with local consumers and customers.’
• Perhaps one would expect no less.
• But the directors, who are now in conflict with their largest shareholder and who may already also be disagreeing with their second largest, may only be able to push this so far.
• They can’t simply roll over but, if they want to be a part of SAB Miller’s future as well as its past, they perhaps should take on board the wishes of (some of) its shareholders that they engage in a dialogue with AB InBev.
Food retail & the heat of battle:
• Heaven forbid that I find out first hand but, I would imagine, in the heat of a battle it’s hard to know just what’s going on.
• Indeed you might even have to wait for the historians to opine before you even know who’s won.
• And the same would appear to be the case with the food retailers.
• Tesco’s shares went down on its numbers. Then they went up. Then they went up and, on the second day, they went up a bit more.
Subsequent scorched earth etc.:
• So pretty much all of Dalton Phillips’ initiatives have now been reversed.
• And Dave Lewis is adopting the same kind of approach at Tesco.
• So when will the world’s 3rd largest retailer sell / close its Giraffe business?
• And, talking about reversals, it’s interesting to see that Mr Lewis’s self-imposed, insider-information phobic ban on buying shares in the company that he runs lasted less than 24hrs.
Click & collect, home delivery etc.
• Morrison’s may end up looking rather smart in closing its C-stores and now in its delaying home delivery whilst pushing click-and-collect.
• Because now, on the back of Amazon saying that it’s going to deliver lettuce (at least in Birmingham), we have Argos offering same day delivery.
• And this, whilst it is going to put more money into the pockets of white-van-men, may not make money for some time.
• You’ve been able to give away tenners for nine-quid for as long as I can remember.
• But Amazon and the other dotcom (ultimate) success stories have shown that, if you can hold your breath for long enough (and sometimes infinitely) you can create a business model. See comments on Morrison above.
Random information, hopefully not all of it useless (re most leisure operators etc.):
• Sterling quite strong on betting that UK may put rates up before US. Betting in both territories is now circa March 2016. Vote yesterday at MPC was 8-1 to hold at 0.5%. No surprises there.
• Oil – keep an eye on the price of the most important commodity in the world. It keeps edging up.
• Miners strong again yesterday, Travel in the risers (despite oil price rise), Marks & Spencer in the main fallers for 2nd day running (on downgrades) and Whitbread on the up (despite YUM comments on slowdown in China). Food retailers amongst the risers for the 2nd consecutive day.
We’re so 21st Century, this morning’s Tweets (diff. font size denotes importance):
1. AB InBev refutes SAB criticism, says bid is credible, that SAB’s board is split + that AB is offering tomorrow’s price today.
2. Ruby Tuesday Q1. LfL sales +0.6%, adjusted EBITDA of $15.0m. Co reports total revenue of $279.5m down by 0.6% on store disposals
3. Tesco CEO Dave Lewis buys 99,950 shares at 200.1p a day after saying the board had banned itself from dealing.
4. Increasing competition in dining sector pushing price of certain dishes down in many pubs, restaurants and hotels per Horizons
5. Local Data Company figures show rate of shop vacancies at lowest point since 2010 but leisure outlet vacancies at record high
6. The M&C reports that first round bids for Gaucho and Ed’s Easy Diner are due this week, with the former being valued at c.£100m.
7. Jamie Oliver has announced his support for Brighton introduction of a voluntary 10p charge to soft drinks.
8. London hoteliers have struggled to match the performance of last year and the pace of growth in 2015 has been mixed
9. MPC vote to hold rates was 8-1, as expected. UK houses now selling at fastest pace for 16mths. World markets higher, oil price up
a. Fed minutes show it believes US economy could have coped with an interest rate rise in Sept – but didn’t want to put it to test