Langton Capital – 2015-10-15 – SAB, UK drinking, wine production, spending & other:
A Day in the Life:
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There are always absolutes out there, aren’t there?
But by definition there’s only one in each category and, until you find the best football team or the smartest scientist, you can waste a lot of time making the wrong choice and the same is true with animals.
I mean, for some time, we thought that chickens were the dumbest animal around. Or at least the dumbest fowl – but that was before we took receipt of two turkeys and boy, are they stupid.
One of them stood in the rain with its mouth open and nearly drowned. It then caught a chill and died whilst the other spent a few months laying eggs on the sloping roof of one of the chicken hutches only to see them roll off and smash on the floor before committing suicide by forgetting to eat for a fortnight making me consider just how the things managed to survive in the wild.
Clearly they breed like fury and, if they can find somewhere not on a gradient to lay their 20 or 25 egg-brood, then at least some of them look destined to live to breed again because, at the end of the day, it’s a numbers game, isn’t it? On to the news:
Pub, Restaurant & Drinks Producer News:
• SABMiller is to meet with investors to discuss recent trading and to comment on its revised cost and efficiency savings target. The company now intends to save £1.05bn by 31 March 2020, as opposed to its previous aim of $500m by 2018.
• CEO Alan Clark said: ‘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. 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% 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.’
• The Sunday Times reports that AB InBev is ready to increase its £65bn offer for SAB from £42.15 a share to a possible £43-£44.
• SAB Miller + AB InBev reported to have until Wednesday to agree a deal. SAB Miller said Friday cost cutting is ahead of plan.
• Media agency Maxus says Britons drink more heavily than their fellow-Europeans. This despite fact consumption here peaked in 2004. Maxus suggests that two thirds of Britons drink at home ‘at least 2x per week’.
• Soho House has pulled its planned £200m high-yield bond. Investors were thought to have been put off by the company’s high leverage. Reuters quotes a credit analyst as saying ‘while this makes for an attractive equity story, high yield investors should remain focused on cash flow. In the end we feel investors are being asked to take equity-like risks for a high yield return.’ Soho House had been looking to refinance a £145m 9.125% 2018 bond callable in October 2015 with a new £200m five-year non-call two senior secured note. The yield was looking like 8.75% before the deal was pulled. The FT quotes a credit analyst with S&P as saying ‘at the moment the markets are quite volatile and the high-yield bond market is essentially shut on both sides of the Atlantic.’
• Daily Mail points out Costa Coffee has the most stores rated less than satisfactory re cleanliness across large UK coffee chains
• Wagamama is today to open its largest ever unit, a 300-seater, in Manchester’s Trafford Centre
• Revolution Bar Group to host analysts’ visit to Revolucion de Cuba site in Milton Keynes on 12 Nov, holds AGM on 6 Nov. Shares bounced recently but still, at 197p, trading at small discount to 200p IPO price.
• Wilson Drinks Report reports total volume of wine sold online rose by 9% in Q1 this year. Sales value plue 11%
• Lyceum Capital-backed EAT plans to open 20 sites next year and will target airport and railway station locations, writes M&C. Other businesses to have found success in busy travel hubs include SSP and WH Smith.
• Italy has overtaken France as the largest wine producer in the world and is on course for a 50.37m hectolitre harvest this year. The figure would mark a 13.4% increase in volume on last year whereas France is expected to lose a per cent to 46.5m hectolitres, according to data from the EU department for rural affairs and agriculture. By comparison, the UK is set for a modest 4.4% rise this year to 47,000 hl.
• Waitrose has become the first multiple retailer to roll out an English dessert wine. Denbies Noble Harvest Ortega 2014 will be introduced in 20 stores this week, as well as online at Waitrose Cellar.
• Stonegate Pub Company has put four central London freehold pubs from the recently-acquired TCG estate on the market.
• Carlsberg UK CEO, James Lousada, has left the company and will be replaced by ex-Heineken Mexico CEO Michiel J. Herkemij on an interim basis. Jørn Tolstrup Rohde, senior vice president, Western Europe, Carlsberg, said: ‘We thank James for all his efforts while leading Carlsberg UK through a period of many changes during the last two years. After careful evaluation we have decided a new type of leadership is required to take Carlsberg UK forward.’
• Coca-Cola is planning to invest $350m and build three new plants in Pakistan in a move that is said will strengthen the economy and create jobs.
• Itsu can continue with its ‘ambitious international expansion plans’ after securing £40m in funding from HSBC. The healthy Asian food chain will have 63 sites in the UK by the end of this year, and recently reported a 32.7% increase in its EBITDA to £6.9m for the 12 months to January 2015.
Holidays & Leisure Travel:
• National rail strike in Belgium on Friday forced Eurostar closures and cancellations
• Sportech announced Friday put up or shut up re bid from Contagious Gaming has been pushed out to 5pm 6 November. It adds the takeover proposal ‘is subject to due diligence, Contagious Gaming raising suitable financing and Contagious Gaming receiving a significant level of support for the proposal from Sportech shareholders.’ Sportech says a further announcement will be made when appropriate. It adds ‘in the meantime, Sportech shareholders are advised by the Board to take no action. There can be no certainty that any formal offer for the Company will be forthcoming, nor as to the terms of any such formal offer.’
• NHS urges a cut on VAT on gym membership in a move to combat obesity. VAT is currently charged at the standard rate of 20%
Finance & Markets:
• Former BoE member Andrew Sentence has said the US and UK central banks ‘need to be courageous’ and raise interest rates. Sentence urged the banks to think long term, saying: ‘We have independent central banks because they are meant to be courageous, they are meant to try and get ahead of the curve, they are meant to do things that politicians might find difficult and they don’t seem to behaving in that way at the moment.’
• The International Monetary Fund believes the Chinese economy will grow 6.8% this year and 6.3% in 2016. China’s Deputy Central Bank Governor Yi Gang was keen to reassure that the recent devaluation in its currency was a one-off, adding: ‘We are satisfied by the measures currently being implemented by the Chinese government to limit the risk of contagion caused by the economic downturn in the short run.’
• European Vice President for the euro Valdis Dombrovskis believes Greece could return to economic growth around the middle of next year. Dombrovskis said: ‘We were forecasting 2.5% growth in Greece this year, now we expect a 2-2.5% recession… If the government works seriously to regain financial stability, it can return to economic growth’.
• World markets: UK up on Friday, Europe likewise. US markets higher in later trade + Far East up Monday
• Oil price consolidating above $50 with further gains. Currently trading a little over $53 per barrel.
• Non-EU UK trade deficit falls in Aug to £3.76bn from £4.78bn in prior month
• ONS figures show UK construction output fell 4.3% in August, while the trade deficit narrowed by £1.2bn to £3.3bn. This is still more than the amount expected and will weigh on growth, according to the body.
• The London market had its eighth straight day of gains on Friday, with Glencore on the rise after it said it was cutting its zinc output. The FTSE100 was up 0.65% to at 6,416.16.
• IMF chief Christine Lagarde has said outlook for China’s economy is not all “doom and gloom”. So that’s all right then. Ms Lagarde told the BBC ‘we are seeing massive transitions at the moment’ and added ‘whether you look at China transitioning from one growth model to the other, from one exchange currency method to another…we are having to adjust as a result.’
Langton Licensed Retail Index – Major Movers
The recent rally in the UK stock market saw the FTSE All-Share slightly leave the LRI behind last week, with the leisure stocks up 1.42% while the wider market was up 4.09% as Mining and Oil stocks dominated the UK risers.
UK Pub stocks had a mixed week last week, with M&B the runaway outperformer, up 6.79%, looking to have been somewhat forgiven by investors for its poor like for like performance and shock CEO change last month in the heat of the market rally. Marston’s was up 2.16% and JD Wetherspoon up 1.35%, both more or less in line with domestic stocks, while Greene King was down 0.25%.
Cineworld was up 4.47% as brokers upgraded the stock last week, while Merlin was up 2.42% as investor sentiment improved for depressed stock prices.
Revolution Bars was up 4.45%, as investors took account of its dividend introduced a couple of weeks ago at the group’s final results.
Domino’s fell 2.47% ahead of the group’s Q3 update on Wednesday this week. Marston’s updates on its Q4 on Wednesday, with UK economic announcements in the form of the CPI on Tuesday and unemployment data on Wednesday also in the pipeline. Will Brumby – firstname.lastname@example.org
Retail Roundup from Nick Bubb:
Today’s Press and News: The big focus is on Tesco again today, with the Telegraph flagging that its new Brand Guarantee scheme will give shoppers instant discounts at the till rather than vouchers, as well as the news that Tesco is keen to talk to landlords about reversing some of the sale and leaseback store deals that were done under the Phil Clarke regime. The Times and the Daily Mail also pick up on the Sunday press story that Tesco is being sued over its accounting scandal by a group of US pension funds.
News Flow This Week: This week kicks off with the BRC-KPMG Retail Sales figures for September tomorrow morning (with the shift of the Bank Holiday likely to drive a 2%-3% pickup in LFL sales). Wednesday then brings the Vertu Motors interims and the N Brown interims. And a busy Thursday then sees the WH Smith final results, the Game Digital interims, the Booker interims and the Burberry Q2 update all vying for attention. Nick Bubb – email@example.com
This was produced for distribution Friday 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 / 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.