A Day in the Life:

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Find previous emails at http://www.langtoncapital.co.uk/daily-notes/ 

So I know there’s not a lot you can do to stop the world tilting on its axis but do people work harder or less hard when it’s dark in the morning?

I mean you feel less lively slinking out of the door in the pitch black compared with (how I hope you would feel on) a bright and breezy spring morning but, as you’ve got less to gaze at out of the window when you get to work, do you get more done when you actually arrive?

Well, possibly. But of course the way to ensure that you get less done in the winter would be to adopt an ‘only arrive at work when it’s light, leave when it gets dark’ kind of policy. Maybe I should look for another job. On to the news:

The News:

Pub, Restaurant & Drinks Producer News:

• Restaurant Brands net income swung to $182.9m from a loss of $23.5m for its third quarter to the end of September, with Burger King sales up 6.2%. Daniel Schwartz, chief executive of Restaurant Brands International said: ‘We are excited about the path for Tim Horton and Burger King global expansion going forward.’

• Leon has secured £11.5m from HSBC to help fund its expansion plans and restructure its existing debt.

• Intertain are opening up a 600 capacity Walkabout in the former Henry J Beans site at the Printworks in Manchester. Work is due to commence on 2 November and the site is scheduled to open in December. Intertain-backer Better Capital has provided a further £3.1m in funds following strong returns on investment at other sites in Solihull and Lichfield this year¬.

• Intertain CEO, John Leslie, commented: ‘We’re delighted to be opening our brand new Manchester venue this December.  The Printworks is a fantastic entertainment hub and we’re excited to introduce our customers to our “new style” Walkabout. Following on from the success of our recent openings, we now have a fantastic platform from which to build for the future.’

• Ponti’s Retail reduced its operating losses from £1,474,109 to £379,507 for the year ending 1 February 2015, notes Propel. The operator of Ponti’s Italian Kitchen and Caffe Italia has embarked on a £2m cost cutting programme and has pulled out of sites including Heathrow Terminal 3.

• BrewDog has launched its second ‘Born To Die’ IPA, available at its bars from Friday 30 October.

• Technomic’s latest BeerTAB Report shows that beer remains the largest adult beverage industry in the USA, growing 0.4% in 2014. Craft beer registered a fifth consecutive year of double-digit increases with a 14% rise in volume in 2014, significantly outperforming the industry overall.

• The managing director of McDonald’s UK has said the proposed sugar tax will not be able to tackle the ‘complex issue’ of obesity. Speaking to the Yorkshire Post, Paul Pomroy said: ‘It’s far more complex than just putting it at one retailer’s door, whether through taxation or whichever way they look at it — it’s also about lifestyle and education.’

• Tesco’s collaboration with Arcadia Group which will see brands such as Dorothy Perkins and Burton occupy space in the retailer’s sites.

Leisure Travel & Hotels:

• Millennium + Copthorne Q3. Revenues for Q3 down £6m (down 2.8%) + for 9mths up £18m (plus 3%).

• MLC Q3: REVPAR in Q3 down 0.1%, PBT £36m (down 28%), EPS 7.3p (down 33%). Asian hotels’ REVPAR down9.6%

• MLC Q3: Says stronger sterling impacted translation. Says drop in profits ‘mainly due to adverse trading conditions in Asian markets’. It singles out Singapore ‘which is also facing increasing pressure on labour costs.’

• MLC Chairman Kwek Leng Beng reports ‘revenue and profit were lower in the third quarter because of weaker performance by our hotels in Singapore and Rest of Asia. The Singapore market is unlikely to stabilise until the end of 2017 as hotel room inventory continues to grow.’ He points also to Taipei and Seoul as tough markets and says ‘these factors, together with slower economic growth in China and higher operating costs, will continue to put pressure on revenue and profit in Asia. Trading conditions elsewhere were more benign although we remain cautious about the outlook in New York and London.’ Mr Kwek concludes ‘pressures on financial performance are expected to persist, especially in Asia. The Group remains focused on controlling costs, optimising sales opportunities and realising the potential of recently refurbished hotels. The Company is
developing its talent pool, with a number of strategic appointments in prospect.’

• Hyatt Hotels is in talks to buy Starwood Hotels in a deal that would create one of the largest lodging chains in the world. Hyatt is thought to be readying a cash-and-stock bid over the next few weeks, with both firms looking to halt consecutive quarters of declining LfL sales.

• Marriott Q3. EPS +20% at 78c, worldwide REVPAR +4.2% in Q3. N America REVPAR also +4.2%

• Marriott adds 10k rooms in Q3 including 3.8k outside US. Pipeline now 260k rooms. CEO Arne M. Sorenson reports ‘our company posted solid performance in the third quarter. North American systemwide RevPAR rose over 4 percent despite the impact of unfavorable holiday shifts on our group business compared to the year-ago quarter. Our hotels are full with occupancy at nearly 78 percent allowing us to continue to raise rates and reduce lower-rated business to drive RevPAR.’

• Marriott says ‘our global development pipeline continues to increase, reaching more than 260,000 rooms at the end of the quarter as owner and franchisees continue to choose our brands. Combined, our pipeline and open rooms exceed one million rooms worldwide.’ CEO Sorenson concludes ‘for 2016, we expect systemwide constant dollar RevPAR will increase 4 to 6 percent in North America, outside North America and worldwide.’ He says ‘given our strong development pipeline, we anticipate our number of rooms will increase 7 to 8 percent, gross, in 2015, including the 9,600 rooms from the Delta acquisition, accelerating to 8 percent, gross, in 2016. Nearly 40 percent of our more than 260,000 room pipeline is already under construction.’

• Marriott re current trading, says ‘based on early fourth quarter transient RevPAR trends, North American RevPAR is likely to increase at the low end of the guided range.’ It says ‘2015 full year diluted EPS could total $3.12 to $3.16, a 23 to 24 percent increase year-over-year.’

• Dublin-based online hostel booking platform Hostelworld will raise £125m in its IPO on the UK and Irish stock exchanges. Majority owner Hellman & Friedman will see its shareholding in the company reduce to under 20% and shares are due to start trading on 2 November.

• Hostelworld boasts a global database of more than 12,600 hostels and achieved adjusted earnings of €10 million. It will have a market cap of £176.8m.

Other Leisure:

• Playtech Q3: Reports total revenue of €170.pm v €116.5m last year. Is +24% excluding acquisitions

• Playtech Q3: Sees 17% growth in constant currencies, aided by weak Euro on translation. Regulated revenues now >50% of total

• Playtech on current trading, says first 27dys of Q4 saw daily gaming revenues +14% on last year (+10% in constant currencies). Mor Weizer, CEO, reports ‘Playtech delivered a strong operational performance in the third quarter with reported growth of 47% and underlying growth of 17%. Three quarters of our growth in Q3 came from regulated markets which now account for over half of all group revenues.’ He goes on to say ‘our Gaming division continues to enjoy double-digit underlying growth with our strong pipeline of opportunities giving us confidence in maintaining our momentum.’ Mr Weizer concludes ‘given the strength of our business and the momentum that we are enjoying, we have confidence for the remainder of 2015 and beyond.’

• Nintendo’s 19% jump to 204.2bn yen in revenue for the six months to September was not enough to stop net profit falling 20% to 11.4bn yen. The Japanese game group’s 2014 profit was distorted by the positive currency impact to its considerable dollar-denominated savings.

Finance & Markets:

• The Federal Reserve has voted to keep US interest rates unchanged at record lows of 0% to 0.25%. The Fed said that, with the US economy still expanding at a moderate pace, it is monitoring the global economy and domestic labour market for signs of strength.

• An unexpected narrowing of the US trade deficit to a seven-month low in September could mean better than expected Q3 economic growth figures. The Commerce Department reported that the goods trade deficit fell to $58.6 billion from $67.2 billion in August. Economists now estimate that trade subtracted only one-tenth of percentage point from third-quarter GDP, rather than the about 0.8 percentage point they had previously forecast.

• The in-out debate re the EU is beginning to simmer away in the background.

• World markets: UK and Europe higher yesterday as oil stocks bounced. US higher in later trade but Far East down in Thurs trade

• Oil price up over last 24hrs, breached $49 at one stage. Now trading around $48.80 per barrel of Brent crude

Langton in the Real World – Food Led Pubs:

Langton sent its amateur restaurant testers to analyse the performance of a large food led, managed pub on a retail park, owned by one of the big listed pub companies.  Observations are set out below:

• First impressions: The pub was very busy for a Wednesday lunchtime, with several families in there for a pub meal over the half term holiday, as well as an older, and probably more regular, crowd. The unit was clean and well-maintained, if a little impersonal.

• Menu: Four of Langton’s representatives were in attendance, with ages ranging from 9 to somewhat older than that. The lack of a children’s menu was noted by one of our analysts, though said analyst’s contribution ended soon thereafter, after beginning a game of TempleRun on her mother’s phone.

• The pub offered both carvery and menu meals, with menu prices around £8 for a meal, and £6-£8.35 for a carvery.  We noted that there would be a difference in timing if some of us ordered carvery and others ordered off the menu, so we all got menu items.

• Ordering: When ordering the food we encountered a bit of dilemma as it was unclear whether we should be joining a queue which had formed by one of the tills, or whether we should just shoulder our way to the bar.

• So we shouldered our way to the bar but only to crumple under the half a dozen glares from the elderly couples and young mothers in the queue.   A lady in the queue politely, but firmly, told us that this was the queue to order food.   We were therefore pretty unhappy to later see people who pushed to the bar further down getting served before us, and have concluded that the staff could have made it clearer how to order. 

• Quality: The food itself wasn’t bad but wasn’t great either.  Portions not particularly generous with oven chips which were fairly bland and re-boiled peas.  The mains were decent quality, but we felt we’d been overcharged.

• Conclusion: We were a little underwhelmed overall, the service was fine and the food wasn’t bad, but we didn’t go out to a pub for oven chips, especially for more than £8 each in Yorkshire.   It’s pretty bad to leave customers unsure of how to order, so we’d expect an area manager to sort that out fairly quickly.

• This pub was owned by one of the bigger listed pub companies, and serves as evidence that new entrants, who can more easily address the shortfalls of a local pub’s offer, can and will outperform an incumbent if given half a chance. Will Brumby – will.brumby@langtoncapital.co.uk

Retail Roundup from Nick Bubb:

Today’s Press and News:
We again haven’t seen all the papers, but yesterday’s reassuring update from Next looks to have been overshadowed by the news that Marks & Spencer was forced to suspend its website for three hours on Tuesday night (after customers complained that they saw other people’s contact details when they logged in…) and the news out in the US that Boots’ parent Walgreen has agreed to acquire rival drugstore chain Rite Aid, in a deal worth $9.4bn, subject to regulatory approval. The FT has a big feature on the deal, as well as a feature on the outlook for Apple and a detailed look (on the News pages) at how UK supermarket chains are adopting different strategies in order to fund the new National Living Wage. The FT stockmarket report notes a downgrade by Merrill Lynch on Morrisons yesterday, questioning the strength of the recovery, ahead of next week’s
interims. Finally, the Yorkshire Post picks up the Retail Week website story that the former Asda boss Andy Bond is launching a new discount variety store chain, backed (like his other new venture Pep & Co) by the South African entrepreneur Christo Weise.

News Flow This Week: With the end of the month coming up quickly, the monthly CBI Distributive Trades survey for “October” is out later this morning and the monthly GFK Consumer Confidence survey is out first thing tomorrow. The Pets At Home pre-close update is also tomorrow. Nick Bubb – nicholas_bubb@hotmail.com

Wednesday Wrap:

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:

Consumer spending:

• GNK’s Tracker shows leisure spending flat year on year and down September on August.

• Within the mix, eating and drinking out spend is down whilst spending on ‘other leisure’ services is up.

• The above can be influenced by the weather, the Rugby etc. but, overall, it would appear that spending is somewhat anaemic.

• Indeed GNK says it was a ‘mixed month’ and it adds ‘while the recovery continues at national level there is a lag effect on consumer experience at household level.’

• It also points to cars & big-ticket spending which, by implication, is less impacted by the above-referenced lag.

• It is hard to disagree with the comment that ‘this month’s figures show how volatile the economic recovery continues to be for UK consumers’.

• Indeed retail giant Next today refers to uncertainty caused by “the continued volatility of consumer demand.

• We would suggest that the bigger question relates to spending habits over the medium term as, if the consumer really is chastened after his/her 2002-2008 excess, spending inclinations (if not ability) may continue to be muted.

• Rents, especially in London, seem to be in denial.

• It perhaps wouldn’t do to be too alarmist but, with the above in mind, the amount of capacity going on, particularly in casual dining, may be somewhat worrisome.

Corporate news somewhat underwhelming:

• Ratings may expand but, ultimately, stock market valuations are impacted (if not actually generated) by earnings. 

• Here there have been a number of profit warnings & cautious statements.

• HOME was downbeat, similarly PSON and, in the US, even Twitter has managed to disappoint.

• Perhaps with interest rates at historic lows and ‘as likely to go down as up’ per some central bankers, it wouldn’t do to call the top of the market.

• However low interest rates, whilst they do depress the yields on rival assets, are finite and can only be temporary and, over time, earnings matter.

The Weather:

• The Met Office has returned data for July through September showing that temperatures were below average.

• September was markedly cool, but it was dry.

• Interestingly today we have sluggish Q3 GDP numbers blamed on lower construction volumes in a wet August and Next saying that Q3 was impacted by “the unusually warm weather” in October.

• Perhaps the warm weather passed us by but, if anything, the above does highlight just how prone to being influenced by the weather, UK consumer spending actually is.

• Indeed link here suggests averages to date, in London at least, are below average for October to date.

Random information, hopefully not all of it useless (re most leisure operators etc.):

• Oil price below $47. Any further slippage & the price at the pump will be coming down again. Good for consumer spending power but less good for government in its battle with deflation.

• Soft commodities, with the exception of cocoa, pretty much all lower. Precious metals also off the top. Inflation, where art thou?

• Heineken looks good. Another case of a € company turning in good numbers whilst $ companies continue to struggle with translation negatives?