Langton Capital – 2015-10-13 – Daily Wrap: SAB accepts bid, retail sales, Sterling, Tesco & 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 / AB InBev:
• So that’s one uncertainty out of the way, SAB’s management has entered negotiations.
• That just leaves Altria & BevCo to agree (that’s likely) and the competition authorities to also okay the deal.
• The latter is not nailed down but – and AB InBev’s directors are betting $3bn of their shareholders’ money on this being the case – agreement (subject to acceptable disposals) is likely.
• Then there’s the time value of money for an uncertain period.
• All of the above suggests to us that a price of c£41 or so would be about right at the current time.
• SAB shares are trading at around £39.50 at the moment. The wheels could drop off, of course but, at this price, the shares could still be attractive.
• AB InBev did raise the question, we forget whether it was in its first, second, third, fourth or fifth approach to SAB – it certainly can’t be faulted for its persistence – as to what price SAB’s shares would trade at ex a bid.
• The latter have traded around £37.50 on a number of occasions and the wider market has since fallen by around 7%.
• Arithmetically, this would suggest around £35 but, if the bid were to fail, then by definition the largest potential purchaser (of SAB) would have been removed from the market and the latter’s shares could fall below this indicated level.
• Hence if there’s a 70% chance of £44 and a 30% chance of, say £33 – then the shares are ‘worth’ £40.70.
• But that, of course, is like saying the average height of a group comprising basketball player Shaquille O’Neal and my nine-year old daughter what’s-her-name is 5’6”. The answer is both 100% right and, arguably, 100% misleading.
Retail sales numbers; good, but not that good:
• September’s retail sales numbers are the best for nearly 2yrs.
• But, factoring in the ultra-late August Bank Holiday, which may have accounted for around a 2% to 3% pickup (see Mr Bubb’s comments this morning), the numbers are arguably a shade disappointing.
• If food retail was down by around 1.2% then non-food retail must have been up by between 6% and 6.5%, which is more gratifying.
Random information, hopefully not all of it useless (re most leisure operators etc.):
• Sterling down in recent weeks against the Euro. Perhaps those changing their holiday money at around 144c to the pound back in the summer had the best of it. Rate now hovering around 134c. The move is unlikely to put too many people off their holidays but, on the margin, it does make a difference.
• Markets a bit juvenile in the short term. Oil price down, price of Carnival and TUI up. It is what it is.
• The merged Park Resorts / Parkdean will be a big old beast, perhaps £1bn in equity value. Might an IPO be on the cards in due course?
• China imports have now fallen for 11mths in a row.
• Germany looks as though it is leading the Eurozone back into deflation.
• Tesco shares are up 20% on a fortnight. See our Langton FRI comments earlier.
We’re so 21st Century, this morning’s Tweets (diff. font size denotes importance):
1. SAB says it has ‘reached agreement in principle on the key terms’ of an offer from AB InBev. A case of 4th (or 5th) time lucky.
a. AB InBev says ‘under the terms of the Possible Offer, SABMiller shareholders would be entitled to receive GBP 44.00 per share in cash’
b. AB to pay SAB $3bn if the deal fails for regulatory reasons. Now needs agreement of Altria and BevCo followed by regulatory clearance
2. ALMR urges caution over National Living Wage + wants to ensure businesses will still be able to invest in their staff
3. Consumer spending growth rose 3.7% year on year in September after falling to its lowest point in 14 months in August.
a. UK retail sales up 2.6% LfL on annual basis in Sept per BRC-KPMG. Beats estimates + is fastest rate of growth since Jan 14
4. The CMA has cleared the proposed merger of caravan park operators Park Resorts and Parkdean. John Waterworth to run combined group
5. Tui understood to have sold hotel booking website LateRooms to Cox & King as it looks to focus ‘on the integrated tourism business’.
6. Hoseasons has added more than 9,000 properties from its sister Cottages4you brand into its own cottages portfolio
7. China imports down 17.7% in Sept, exports down 1.1%. County had a trade surplus of US$59.4bn on the month
8. Labour has withdrawn its support for plans to force future governments to establish budget surpluses to underline anti-austerity policy
9. Premier Foods set to benefit from cooler Q3. See email for details. July 0.7 degrees < average, Aug 0.2 lower, Sept down 0.8
a. Premier Foods: Soft comps, ‘aligned’ supermarkets, some capex, helpful weather, marketing spend up + PER of 4.0x falling to 3.9x