Langton Capital – 2015-10-21 – Daily Wrap: Merlin, ‘good’ stocks, YUM, sugar & 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:
Merlin & China JV:
• JV looks like good news.
• MERL shares are on 21x this year (Dec 15) and next as a result of the hit taken in the wake of its unfortunate Alton Towers accident.
• Model is scalable, China is big and, for a company that looks set to continue delivering, 21x earnings doesn’t look like too high a price to pay.
Remember the ‘dash for trash’? It’s not a good idea (until it is):
1. You recall the Fast Show sketch, chap goes out for some bread & comes back with a rabbit skin, a Christmas hat and a pound of nails?
2. It’s a bit like that with shares. You know you should buy good companies, you’ve got an idea when their share prices are attractive but what do you do, you get seduced by what’s cheap, stock up on rubbish.
3. That’s too simplistic, of course but, when a share price declines, it’s easier to live with oneself if one has bought a good (rather than a less-than-good but cheap) company.
4. Good companies on our patch include Whitbread, Merlin and SSP. Arguably also JDW. Companies that should be and probably will be good include TCG, MARS and a number of others.
5. Hence pick a stock, pick a price and put in an order. MERL is probably attractive right now. WTB might be a couple of quid the wrong side of fair value, JDW 40p high etc.
6. However, in reality, go back to 1.
YUM splits off China, precedent for Whitbread:
• Probably not but, given the YUM has decided to spin off its China operations, Whitbread may choose to dust off its own calculations re Costa
Sugar – a smoking gun?
• In a world of grey it perhaps shouldn’t be surprising to see that the case against sugar is unproven.
• Or at least only partially proven.
• Tim Martin may be dismissing Jamie Oliver as a weepy do-gooder (a ‘show-boater’) but that might be a little harsh.
• In fact being obliged to pay a little more for something that might adversely impact your health doesn’t seem to be altogether a bad idea.
Random information, hopefully not all of it useless (re most leisure operators etc.):
• Home Retail shares drop on news that 24hr delivery costs a lot. Not a surprise, surely. Brings back to mind MKS comment last week that Black Friday (and home delivery, click-and-collect etc.) does not expand the market – but simply introduces a different type of competition.
• Sterling a little stronger against both Euro & US$. Good news for most importers, commodity users & purveyors of overseas holidays.
• Oil price stable below $50, precious metals moving up a little.
• IHG and WTB the major movers yesterday, both on results. And looks like ARM (figures) and MERL (China JV) will also be moving higher on RNSs this morning. Home Retail & Pearson not so much.
We’re so 21st Century, this morning’s Tweets (diff. font size denotes importance):
1. WTB H1 analysts’ meeting reassured growth remains on track, China slowdown not impacting Costa adversely, numbers secure
2. YUM is to split off its China unit. China business more than half the group but has been hit by a number of problems.
a. Yum China, with 6,900 restaurants over 1,000 cities will operate under franchise + be original company’s largest franchisee.
3. Camino will join the Jamie Oliver campaign to add a levy to soft drinks. JDW’s Tim Martin has criticised the campaign as ‘showboating’
a. Chris Snowdon, Director of Lifestyle Economics at the IEA, says international sugar taxes have no effect on overall health and obesity.
4. Tsingtao brewery has acquired the remaining 50% stake in its loss-making Suntory Holdings JV for 822.9m Yuan (£83.91m)
5. McColl’s has announced plans to sell up to 100 newsagents as it looks to focus investment on the convenience branch of business
6. Movie ticket sites in Europe + US crashed Monday night as thousands of Star Wars fans struggled to order tickets for 18 Dec
7. PPHE Hotel Group has signed a hotel management agreement with Battersea Power Station Development Company
8. Merlin announces China JV. Will set up JV with China Media Capital to develop LEGOLAND Park in Shanghai + other attractions elsewhere.
a. Merlin says it will open ‘additional Midway attractions across China; including existing and new brands’
b. Merlin details its ‘plan to develop a LEGOLAND Park in the Shanghai area and target the roll out of various Midway brands in China
9. London Paramount Entertainment Resort has won £100m of financing from Chinese firm SinoFortone for a £3.2bn them park in Kent