Langton Capital – 2015-10-19 – Daily Wrap: Whitbread, driving sales, commodities, China & 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:
Whitbread numbers tomorrow:
• In what will be CEO Andy Harrison’s final H1 statement (he leaves the business in February next year), Whitbread reports H1 numbers tomorrow.
• The group has already updated on Q1 and Q2 saying as recently as 8 Sept that total sales were up 11.8% (LfL +3.9%) for the first 24wks of H1.
• At that point, Mr Harrison said the group was ‘on track for full year expectations’ and said ‘we are continuing to deliver our ambitious organic growth plans with another good quarter’.
• Premier Inn grew total sales by 11.6%, restaurant sales were up by 0.6% LfL and Costa grew UK LfL sales by 4% and total sales were up by 16.2%.
• The group should have a limited capacity to surprise but, though we accept that Whitbread is a quality company and believe that it has true growth potential overseas, there are a number of grey clouds on the horizon.
• The shares are not cheap, Travelodge is somewhat resurgent, CEO Harrison is leaving the company and Costa is facing domestic and international competition.
• Furthermore, China is slowing (and government spending rather than consumption is taking a larger share of GDP) and, though the potential to expand is huge, this slowdown has to be taken into account when determining future likely sales growth.
• Whitbread’s shares were less than £8 in 2008, they were £15 in 2011 and they hit a high of near £55 in Q2 this year.
• They are currently around £47 and, whilst we do not see grounds for a serious setback, there may still be some holders inclined to take profits.
Sanity v vanity:
• A number of McDonald’s franchisees in the US are alleging that its all-day breakfast offer is a disaster.
• This may be somewhat flowery but it does bring to front of mind that there should be a good reason for driving sales and that, if this cannibalises other products or fails to generate a margin, then it may not be a good idea.
• Profit, as they say, is sanity whilst sales can be vanity.
• JD Wetherspoon has on occasion been accused of driving sales over profits but, in its defence, it can be right to take market share and to shore up barriers to entry thereafter.
Random information, hopefully not all of it useless (re most leisure operators etc.):
• Vianet has confirmed today that pub trading remains tough. This is not new news. The fortunes of Vianet’s original business remain tied to pub numbers and beer volumes in the off trade – and both are under downward pressure. Pub operators know this and they are making their decisions accordingly. We hear from Punch Taverns (FY numbers) on 12 November.
• Corn & wheat prices down a little as they fumble a rally. Cattle prices up after a sustained dip. Coffee & cocoa prices reverse trend in that the former price is rising a little & the latter falling. Both movements are only partial reversals of earlier established moves.
• China GDP growth slower but better than expected. Some observers pointing to sharp upturn in element of growth coming from government spending. There are only so many bridges etc. that you can (or should build). This may have an implication for some operators such as Yum, Costa and others. Certainly Burberry and Hugo Boss have felt the squeeze.
• PwC tells us that shop closure numbers are at multi-year lows. This isn’t necessarily proof that we are at the top of the cycle but, with the recession now 6yrs behind us, it’s perhaps proof that we are certainly no longer at the bottom.
• Pizza, burger, chicken. There’s little to be gained in reinventing the wheel. Perhaps you could make it better (Franco Manca in pizzas, Chicken Shop or better burgers etc.) but if you make it square, oblong or triangle-shaped, it will not function as well. Operators perhaps know this but the search for the next pizza product – via Mongolian tapas etc. – goes on.
• US v Euro stocks. Interesting to see some US stocks (Netflix, Walmart & others) undershooting, Swiss Franc stock Nestle in the same camp & Euro stocks such as Unilever beating expectations; it couldn’t be something as simple as currency conversion, could it?
• Interesting to see analysts at Profitero finding that the groceries sold by Amazon in the first week of its service in Birmingham were some 45% cheaper on average that the Ocado equivalent. True, the range is narrow but come on… And Ocado is on a forward multiple of 181x falling to 123x November 2016…
• Black Friday, as Nick Bubb mentions this morning, does not expand the retail cake. It’s rather a question, as ex-CEO of Citigroup Chuck Prince said, of feeling that you must dance as long as the music is playing.
• Interesting to see Fuller’s and Young’s share prices moving in opposite directions last week. See our LRI for fuller details.
We’re so 21st Century, this morning’s Tweets (diff. font size denotes importance):
1. Vianet updates on H1 numbers, says ‘trading for the first half of the current financial year was ahead of the same period last year’
2. M+B completes integration of 173-strong Orchid estate. Its integration programme director Steve de Polo will now join Enterprise Inns
3. Restaurant Group NED Tony Hughes sold 200,000 shares at a price of 705 pence per share on Thursday in a deal worth £1.4m
4. French spirits producer Remy Cointreau’s H1 sales fell 5.9% as a result of distribution changes in its key markets.
5. McDonald’s franchisees are calling its all-day breakfast menu, launched on 6 October in the US, a ‘nightmare’ as it is slowing down service
6. Five Guys UK sales jumped from £3.6m to c£24m in the year to the end of 2014, with LfL sales up 10% in stores open more than 1yr
7. PwC research shows 2,634 UK shops closed in the first half of 2015 at a rate of 14 stores a day – the lowest closure rate in 5yrs
8. Elegant Hotels updates on FY trading, says ‘trading since the interim results in June has remained solid’
9. Uber has reported that revenues increased more than 10x to £11.3m in the UK in the last year
10. Welcome Break to be sold, sources suggest value of around £700m. Group currently has 27 sites across UK
11. China cruise market reported to exceed 1m passengers this year, some 5x the number that travelled in 2012
12. The number of overseas tourists visiting London was up 6% to 5.1 million in the second quarter of 2015
13. China’s economy grew by 6.9% in Q3, the slowest rate since the global credit crunch. Result nonetheless slightly above expectations
14. What works + what doesn’t in 60 secs. Try pizza, chicken, burgers. Avoid spuds, eggs + anything to do with porridge. See email for details