Langton Capital – 2015-10-27 – Alcohol + health, sugar, asset sales & other:
A Day in the Life:
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Find previous emails at http://www.langtoncapital.co.uk/daily-notes/
So is it true that 10 people or so will complain for every one that will heap praise on a restaurant, pub, other leisure operator or, indeed, a parent, sibling or child?
Well, sadly, it probably is because, on the numerous times that I’ve taken the M1, the A1 or the M11/A1 from London to Yorkshire, it’s never occurred to me to tell anyone that would listen that the journey was uneventful, efficiently-managed or otherwise smooth whereas, on the handful of occasions when I’ve been seriously inconvenienced, the whole world has known about it pronto and it’s the same, it would appear, with restaurants.
Because a survey we covered last week or the week before suggested that, whilst >90% of diners would moan to friends about a bad meal, less than half would either complain at the time or, if the meal was good, say that it was good.
And, presumably, an infinitesimally small number would feel the need to say that the meal was average, okay or simply hit the spot suggesting that bad news travels more rapidly than good. On to the news:
Pub, Restaurant & Drinks Producer News:
• BBPA CEO Brigid Simmonds has called alcohol’s perceived impact on emergency services ‘a myth’ following a recent study.
• A report from global research company IRI suggests that deals offered in UK grocery stores are failing to work as they should. While 54.6% of the volume of product sales in the UK were bought on offer in 2015 (compared to 28.6% for Europe overall), the industry’s penchant for promotions is struggling to drive up sales.
• The number of new wine producers in the UK rose 41% last year, with the HMRC receiving 65 applications. According to national accountancy group UHY Hacker Young, the growing demand for UK produced wine has been fuelled by an increasing call for locally-sourced produce.
• Stonegate’s acquisition of TCG and NewRiver Retail’s purchase of 158 Punch pubs show that there is still demand for pubs including certain tenancies per report from CBRE
• Mexican fast food chain Chilango, which opens its 10th London site soon, is aiming to raise £1m through a second crowdfunding campaign. The company is giving away a 3% stake in the business to fund its expansion into 20 cities including Manchester, Leeds and Oxford and is targeting 50 sites over the next five years.
• The IEA has noted the fat taxes in Denmark failed to change consumption habits and had a limited impact on public health. Implies that any UK tax on sugar would be similarly unsuccessful.
• Majestic is to drop the six-bottle minimum purchase rule, meaning customers will be able to buy individual bottles from its stores.
• Wal-Mart has applied for permission to test drones for home delivery in the US. It has been conducting indoor tests for some time
• 130-strong Bingo operator Gala is being bought by investment trust Caledonia for £241m.
Finance & Markets:
• A CEBR report shows that mortgage activity has picked up this year but that house prices may continue to rise due to limited supply. The CEBR now predicts house prices will rise 5.6% this year compared to its previous forecast of 4.7%.
• New US single-family home sales fell to near twelve-month low in September after two straight months of gains.
• World markets: UK and Europe down yesterday. US down in later trading + Far East down in Tuesday trade bringing 4wk rally to an end
• Oil around $1 lower in last 24hrs. Trading at $47.30 per barrel amid concerns re over-stocking
Retail Roundup from Nick Bubb:
Monday’s Press and News:
Monday’s Press and News:
Carpetright: The pre-close update today from Carpetright for the 25 weeks ended 24 October is interesting, in the light of last Thursday’s warning from Travis Perkins about slower housing-market related trading in the big ticket market, because things look fine! UK sales are up 4% LFL, despite tough comps, and the recovery in Europe has continued, so there is no change in full year profit guidance. The new CEO Wilf Walsh says “Our aim to revitalise the Carpetright brand is on track. We have made further progress with the strategy of rationalising and repositioning our store portfolio and are encouraged by the early performance of our four trial concept stores in the UK”.
Shoe Zone also : The discount shoe retailer Shoe Zone has also issued a pre-close update today (for the 52 weeks to 3 October) and although this is brief the news is also fine: “The Group has traded well in the second half of the year…and expects pre-tax profit for the period to be in line with expectations”.
John Lewis Sales Watch: We flagged on Friday that recent Fashion trading at that great High Street bellwether John Lewis has been boosted by the cooler weather and that should have carried on last week, but given tough comps in Electricals (from the launch of the new iPad Air 2 and iPad Mini 3 by Apple this time last year), we would only pencil in flat LFL sales overall (ex the impact of the new Birmingham store), ahead of Friday morning’s official figures for w/e Oct 24th.
Today’s Press and News:
Movers and Shakers Watch:
News Flow This Week: The Apple Q4 results are out in the US tonight. Tomorrow brings the Next Q3 trading update. With the end of the month coming up fast, the monthly CBI Distributive Trades survey is out on Thursday morning and the monthly GFK Consumer Confidence survey is out first thing on Friday. The Pets At Home pre-close update is also on Friday. Nick Bubb – firstname.lastname@example.org
This was produced for distribution yesterday 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:
Currency movements favour tour operators:
• M. Draghi maintained his mercurial reputation last week when he said that interest rates across the Eurozone could go up or they could go down.
• His comments have since been followed by suggestions that more QE was needed in the Eurozone and that, with the Swiss currently experimenting with negative interest rates, such a move was not out of the question across Europe.
• Hence the Euro has plunged.
• This makes UK holidays on the Continent cheaper for holidaymakers & it cuts the cost of beds for the UK-based suppliers
• Historically, windfall benefits (cheap oil etc.) have had to be passed on in the most part to customers. Thomas Cook, for example, said recently that c70% of any oil price reduction has to be passed on in the short term (and pretty much all of it over the longer term)
• And cheaper bed prices may be similar but, as the consumer will feel the benefit as soon as he/she leaves the airport, there could be an impact on demand as well as supply costs – and this too should be positive
• Whilst currencies tend to move in both directions, recent ECB comments have been generally helpful to holiday companies TCG and TUI
Sugar vs tax credits:
• So if HM Government needs to back down on either tax credits (cost £4bn to £6bn) or sugar (cost £nil), which is most likely?
• Jamie Oliver may come out of this looking like and individual with the ability to change government policy
Merlin & Parques Reunidos:
• Surely the former would have been the natural buyer for the latter.
• But that’s not happening suggesting that PE was willing to pay a higher price.
• That is what it is but, at the very end of the day, PE owners need to either IPO their businesses or find a trade buyer and, the more iterations the thing goes through, the higher the price needed in order to make the transaction work.
Sainsbury & micro-convenience stores:
• See also comments on Friday.
• SBRY may be about to follow the opposite policy to MRW.
• Units of 1,000 square feet are pretty small.
• If that’s the gross area, then strip out the tills, the loos and the warehouse (a.k.a. the ware cupboard) and you might have 400 feet.
• Surely this would be an area best franchised to outside operators?
Stock market expectations:
• So we have no inflation.
• We have GDP growth of around 2% (if we’re lucky).
• And we might be nearer the next recession than we are past the last.
• Yet we have double digit forecast earnings growth for many operators going off into the distant future.
• And this off the back of mid-teens PE ratings.
• Hence we have just one question, how’s that going to work?
Random information, hopefully not all of it useless (re most leisure operators etc.):
• Evolution continues at a pace. SBRY is trying to find value in micro-units & Debenhams want to derive 10% of sales from food. See earlier email.
• Oil unchanged, orange juice getting more expensive, ditto red meat. Sugar price also off the bottom. Precious metal prices up a bit.
• Friday saw some ‘Day II’ movers. Often share prices react sufficiently on the day of their numbers (or profit warning, or whatever). Last week, however, this did not seem to be the case with ARM (up) and Pearson, Home Retail & Sheffield Insulation (all down) following through for a second trading session.
• Profit warnings coming through in a steady flow.
• China rate cut; 6th in a year.