A Day in the Life:

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

So what is it about Halloween?

I mean it wasn’t even a thing when I was young but it seems to have put down roots such that my life wouldn’t have been worth living if I hadn’t found a party for our daughter to go to during which, apparently, she got to dress up, tell ghoulish stories and then troop around in the dark (admittedly accompanied by relatively responsible adults) in order to ask strangers for money.

Or sweets or a swig of whisky or whatever depending on age but I drew the line at putting on makeup and a silly hat myself when I could be sitting by the fire catching up on Homeland or the Detectorists or some-such. An old fuddy duddy I may be – but at least I was warm and dry. On to the news:

The News:

Pub, Restaurant & Drinks Producer News:

• Fulham Shore announces franchise agreement with Bukowski Grill, operator of a London-based charcoal-grill restaurant + bar.

• Fulham Shore + Bukowski. Latter currently has 2 restaurants in London at Brixton Market + BoxPark, Shoreditch.

• Fulham Shore will add new Bukowski restaurant on D’Arblay Street in Soho. Cop has 15yr lease on the site. Will pay 5% of revenues

• Fulham Shore in supply agreement with Bukowski Grill. Announces it has opened 6 restaurants this year to date. It has 9 Real Greek and 17 Franco Manca outlets. Chairman David Page reports ‘we are thrilled to be opening a Bukowski in Soho. Bukowski sells great breakfasts, burgers, ribs and steak accompanied by delicious beer and wine. This three year franchise agreement will add to Fulham Shore’s exposure to, and knowledge of, the exciting and thriving London restaurant market.’

• Pub estate owners, industry bodies welcome proposal to drop need for parallel rent assessments as too costly to implement

• Fleurets reports rent increases over last 12mths. Says ‘London market continues to dominate as the largest single area of activity’

• Fleurets reports ‘many more lease renewals and rent reviews have been concluded in London than throughout the rest of the UK. This is in part down to the buoyant market that has been experienced over the past 3 years. This is in sharp contrast to the rest of the country, particularly the northern regions.’

• Fleurets says rent increases in the north muted. Re London, says ‘with the booming economy within the M25 operators have been keen to secure sites to maximise the benefits of the increased leisure spend. With only a limited amount of operating space being available and an increase in demand, which has outstripped supply, rents as a consequence have been forced upwards.’

• Fleurets says re London ‘new entrants to the market are also creating a surge in rents, particularly within the restaurant sector.’ It says ‘one of the biggest drivers to the London market has been the significant increase in overseas investment’ and adds ‘this coupled with occupier demand has pushed property prices to record levels.’ It adds that investors buying property at high prices are expecting to see their rents rise accordingly.

• Fleurets recognises ‘secondary’ London locations (Shoreditch, Hackney, Brixton) as currently very hot. It says ‘a further consequence of London’s growth is that many operators are starting to see a squeeze in returns due to higher overheads, particularly rents. This has forced many to seek outlets in less pressured areas on the outskirts of the city. In addition many London operators are now seeking representation in the wider UK market. When considering any statistics it is no surprise that London rents are significantly higher than the rest of the UK.’ It says ‘the highest rent we have seen has been in excess of one million pounds per annum.’

• Fleurets says ‘growth within London appears to be unabated, although as with any cycle, this cannot continue indefinitely.’ It says ‘the difficulty is predicting when this level of growth will slow down.’

• Fleurets says London operators moving to the regions, e.g. Manchester Spinningfields etc. are pushing up rents.

• Burger King to be 1st fast food chain to sell alcohol across its UK restaurants. It is to test the product at 4 branches including Hull

• Chipotle has temporarily closed 43 restaurants in the NW of the US as authorities investigate an outbreak of e-coli

• Equality + Human Rights Commission says young people in UK face the ‘worst economic prospects for generations’. Fewer jobs, higher house prices etc. It says re younger workers ‘theirs are the shoulders on which the country will rely to provide for a rapidly ageing population, yet they have the worst economic prospects for several generations.’

• Remarkable Restaurants has bought the Albion in Bethnal Green and is looking to add more sites to its current total of 15, writes M&C. Managing director Elton Mouna said of the acquisition: ‘We are investing considerably in this tiny pub and when we throw open the doors expect a bigger operation altogether. The footfall walking by the Albion on a Sunday morning alone made us certain this was a pub for us.’

• The BBPA has welcomed proposals from DCLG to streamline the appeals process for Business Rates. Brigid Simmonds, chief executive, commented: ‘We very much agree that the system needs to be streamlined. The BBPA had called for modest fees, and specifically that they be refundable where the challenge is successful, which is what is now being proposed. We need to ensure that cases needing urgent attention are dealt with promptly and effectively, so that licensees get the rebates they deserve, for overvaluations, and pay the right level of rates in the future.’

• Richard Stringer and Ian Banks are leading a management buy-in of Jamie’s Wine Bar owner Kornicis in a deal thought to be worth around £10m.

• Bailey’s is launching a marketing campaign over the festive period, which will include television and social media ads and sampling events.

• M&C Allegra research shows that operators are increasing prices, with premium prices in particular getting pushed up.

• English sparkling wines Hambledon Classic Cuvée and Nyetimber Classic Cuvée 2010 beat famous champagnes in a recent blind tasting.

• Magners and Tennant’s owner C&C is reportedly looking at a number of beers that will be up for grabs as a result of the SAB-AB merger.

• Peet’s Coffee & Tea’s majority stake in Chicago-based Intelligentsia Coffee shows that the ‘artisanal’ coffee market is heating up.

• The boss of Timothy Taylor has criticised tax breaks given to smaller brewers, saying beer prices have been pushed down by the craft beer boom.

• Toys ‘R’ Us’ full-year pre-tax profits in the UK shot up by 257.8% to £16.3m for the year ending 31st January after four years of decline.

• Morrisons has promised to become the first supermarket chain to donate all its surplus food to local community groups.

Travel & Hotels:

• Fog is causing delays and cancellations across a number of airports in Northern Europe

• Center Parcs moved a stage closer to opening in Ireland after submitting a planning application for its €233m project

• The First Rate Holiday Confidence Index has found ‘clear evidence that consumers are tightening their belts’. The report also identifies ‘lingering doubts’ among consumers about the extent of the recovery in the UK economy and household finances.

Other Leisure: 

• LinkedIn shares rose sharply on Q3 numbers. Revenues at US$780m – up 30% – versus predictions of US$756m

• Cineworld shares down on broker downgrade. Comps tough but surely Bond will help in the short term

Finance & Markets:

• ECB will ‘do what it takes’ to keep inflation targets on course per Mario Draghi. Inflation in the Eurozone is currently 0.1%

• Chinese manufacturing contracts for 3rd month per PMI. Recorded 49.8 in Oct (same as Sept) where any number <50 implies contraction

• UBS says London housing market is the world’s biggest house price bubble. Ratios versus income well ouot of line

• World markets: UK mixed, Europe up, US down on Friday. Far East markets also lower in Mon trading

• Oil price a little firmer at around $49.60 per barrel

• Eurozone unemployment rate down to 10.8% in Sept (v 10.9% in Aug).

Leisure – The Week Ahead

Marks and spencer has its interim numbers on Wednesday 4 November.  The group’s website was suspended this week after leaking customer details, which will not help customer sentiment in the light of the TalkTalk scandal.   The stock has been the subject of a few downgrades recently, and the shares have retrenched to around the £5 level, having peaked at near £6 in May this year.

Wizz Air also has interim numbers on Wednesday.   The weak oil price has been helping the airline industry since July, and EasyJet, Ryanair and the other budget airlines have been performing well recently.   Wizz’s load factor looks to be robust at c90%, and the growth potential of Eastern Europe has seen the shares rise more than 50% since their listing back in March this year.

New Car Registration data comes out on Thursday.  Big ticket spend has been strong for a while now, and Sainsbury’s has inferred that this should translate to an uptick in small ticket spend by Q1 next year.   Services and Composite PMI’s are out on Wednesday, as is the BRC Shop Price Index.

Inflation report and interest rate decision come out on the Thursday.  Latest thoughts are that the US will be raising rates in December, with the betting here that UK rates will rise towards the end of Q1. Will Brumby – will.brumby@langtoncapital.co.uk

Langton Licensed Retail Index – Major Movers

With the wider market preoccupied with mining and oil companies last week, the LRI managed to markedly outperform, rising 1.23% while the FTSE all-share was down 0.78%.

Merlin up another 3.71% following the announcement earlier this last month of a JV to open Legoland Parks and other attractions in China.

The pub groups were mostly up last week with Greene King up 0.25%, JD Wetherspoon up 0.45% and Marston’s up 0.69%.  M&B had another strong week rising 3.11% after a prolonged period of weakness in its shares.   The tenanted pub companies had another mixed week with Enterprise up 3.24% and Punch down 2.26%.

Domino’s Pizza was up 4.8% following some stock upgrades by brokers.  With the market seemingly more positive on the general economic outlook following the China driven dip recently, investors seem to be returning to their favoured stocks.

SSP Group was down 0.3% as oil price rises make investors rethink travel numbers.

Cineworld was down 1.8% as a sell note was put out on the stock late last week amid concerns over tough comps for next year following a stellar film schedule this year. 

There is little in the way of leisure companies reporting next week, though we will get financial data in the form of the latest interest rate decision as well as GDP numbers later in the week. Will Brumby – will.brumby@langtoncapital.co.uk

Langton Food Retail Index – The Grocer’s Dozen

Tesco, Morrisons and Majestic Wine led the FRI lower in the week to Friday 30 October.

Grocers

Despite Tesco’s new chairman, John Allan, buying 51,978 shares on Tuesday, the supermarket slipped 4.11% to 183.3p. Allan, who took over from Sir Richard Broadbent in March, purchased the shares at 192.39p for a total value of £100,000 and has also spent a further £186,000 on Tesco bonds.

The group has recently announced a tie-up with Phillip Green led fashion brand Arcadia. Shoppers in Horwich, Culverhouse Cross, Chesterfield, will have access to all three Arcadia brands, while only Dorothy Perkins and Burtons will open in Bradley Stoke.

The news comes after Sainsbury, down just 0.66% to 266p, announced it is revamping its stores in a bid to boost sales and will open smaller shops to appeal to customers who only have time to buy a few essential items.

Morrisons fell 3.71% to 168.5p. The group is being sued by more than 2000 staff after some of their personal and financial details were posted online. The security breach happened when a rogue company auditor got through the company’s controls and leaked the data.

Specialiy/Wholesale

Majestic Wine shares have fallen substantially from their 52-week high of 472p in early August. The wine retailers shares now trade at 336.56p, having fallen by 5.19% over the course of the week.  Majestic has abandoned its strategy of only selling wine by the caseload and is now selling by the bottle as it seeks to compete with the supermarket chains.

Pressure from supermarkets over the last couple of years forced two of Majestic’s rivals, Oddbins and Threshers, into administration, while industry-wide retail sales of wine have fallen 14.5% since 2011, according to the Wine and Spirit Trade Association. Jack Brumby – jack.brumby@langtoncapital.co.uk

Retail Roundup from Nick Bubb:

Saturday Press:
The disappointing trading update from Pets At Home was the big story on Friday and the Daily Mail (“Paw performance for Pets At Home”) and the Times (“Pets at Home dogged by lack of fleas”) had fun with headlines mocking Pets’ excuse about weak sales of pet hygiene products. The most intriguing article in the Saturday papers, however, was the FT revelation that the embattled Marks & Spencer CEO Marc Bolland is thinking about injecting some growth by making some acquisitions of branded fashion companies (albeit the only business mentioned was The White Company). In other news, the Daily Mail flagged that Lidl has awarded its UK MD Ronny Gottschlich a 56% pay rise to £970,000 in the last financial year (according to accounts filed at Companies House), whilst the Times highlighted that Morrisons has pledged to become the first UK supermarket chain
to donate all its surplus edible food to local community groups (with its Editorial thundering that other supermarkets should follow suit). The stockmarket report in the Independent noted that Anthony Smith and Charles Smith, the CEO and COO of Shoe Zone respectively, sold c2.5m shares at 190p on Thursday, shortly after the pre-close update. The Guardian had a feature on Halloween, flagging that shoppers were set to spend a record £460m on fancy dress, food and decorations this Halloween, boosted by the event falling on a Saturday for the first time since 2009 and at the end of many schools’ half term holidays. Finally, Dave Lewis of Tesco was, a little harshly, judged the winner of this week’s “Dogberry Award” by the Daily Mail for the worst crimes against the English language, for allowing a Tesco spokesmen to say that Tesco wants to create “a pipeline of
talented women”.

Sunday Press:
The big focus in the Sunday papers was on Marks & Spencer, ahead of next week’s interims, with the City softened up for another disappointing fall of 1%-2% in General Merchandise LFL sales in Q2, as per the articles in the Sunday Times, the Sunday Telegraph, the Observer, the Sunday Express and the Mail on Sunday. The Sunday Times flagged that the embattled CEO Marc Bolland would get a boost from a modest rise in overall H1 PBT, but the Mail on Sunday highlighted that weakness in the M&S Overseas Division is a new concern, whilst the Observer mocked the M&S website IT glitch that occurred just after the launch of the Sparks loyalty card (“This is not just any technical glitch…”). In terms of other previews, the Observer highlighted that the success of the recent Primark launch in the US will be a focus for the ABF/Primark final results on
Tuesday, whilst the Sunday Telegraph flagged that the new CEO Dave Potts hasn’t been able to stop a further sales slide of over 2% LFL at Morrisons in the Q3 update to reported on Thursday. The Sunday Telegraph also found a fashion model photo opportunity in the 2014 results reported by the fast-growing Seasalt fashion chain. The main Business story in the Mail on Sunday was a report that 1 in 5 shoppers use “Black Friday” deals to buy cheap products and then sell them on at a profit…and the Midas investment column looked in detail at Card Factory and said the shares are a Buy. The Sunday Times had a couple of snippets about the record sales and profits reported by Selfridges for last year and the news that the new owners of BHS are still weighing up options to sell off the Oxford Street flagship store. Finally, the Sunday Times had a feature interview with the cigar
chomping Yuan Yafei, the Chairman of House of Fraser’s new Chinese owner, the Sanpower Group, and suggested that cash flow problems were to do with the decision to allow another UK trophy Hamleys to be bought by a Hong Kong affiliate instead and that HOF management were unhappy about the conference calls he held in the middle of the night…

Grocer Watch:
The main focus of Grocer magazine on Saturday was on the bumpy start for the new My Local convenience store chain founded by entrepreneur Mike Greene. The Grocer also flagged that “Project Reset” at Tesco has driven down the base prices of Tesco’s wine range by an average of 11%, even though price points have been switched to round numbers like £5 and £5.50 rather than £4.99 or £5.49. As far as the widely followed Grocer “33” weekly supermarket pricing survey is concerned, having previously criticised the impact of Tesco’s new “Brand Guarantee” scheme, the Grocer highlighted that after an instant cash-back of £3.67 the Tesco basket of £62.81 put Tesco in 2nd place in this week’s survey, although it was still more than £2 expensive than the routine winner, Asda on £60.55. Waitrose was a distant 5th this week on £71.81.The separate Grocer
“Mystery Shopper” survey on Store Service and Availability was won again by Sainsbury, as their big 80,000 sq ft store at Darnley in Glasgow topped the rankings, albeit with a modest score of 67 out of 100.

Today’s Press and News:
The Daily Mail reports that the CMA is investigating Sports Direct over claims that it blocked negative reviews of products on its website. The Guardian flags that non-EU sellers on Amazon and eBay are costing European governments hundreds of millions in VAT revenue every year as sellers, particularly from China, under-declare the value of goods shipped, thereby qualifying for VAT exemptions on low-value packages. The Daily Telegraph interviews Jeremy Seigal, the CEO of White Stuff, about the company’s Overseas expansion plans. A number of papers follow up on yesterday’s reports that Selfridges has reported record profits for y/e Jan. And the Times notes that Paperchase has negotiated a £50m debt facility from Permira and Lloyds Bank to help fuel its expansion, three months after Primary Capital, Paperchase’s owner, cancelled a proposed sale after bidders
failed to offer the right price for the chain.

News Flow This Week: To kick off November, the big event this week is the Marks & Spencer interim results on Wednesday, closely followed by the Morrisons Q3 update on Thursday, but there’s plenty going on around M&S and Morrisons. Tomorrow brings the final results from ABF/Primark, plus a trading update from the car dealer Pendragon, whilst on Thursday we get the SuperGroup Q2 update and the Howden trading update. Nick Bubb – nicholas_bubb@hotmail.com

Friday Wrap:

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:

Confidence wobbles:

• CBI distributive trades survey apparently not upbeat

• GfK shows confidence waning

• Mortgage approvals down

• GNK Tracker somewhat anaemic

• Hitherto, we have maybe blamed this on de-gearing and then big-ticket spending but is this rather subdued backdrop the new reality?

Merlin – beginning to recover:

• We’ve rated MERL highly for some time.

• The Alton Towers accident has meant that the group will forego a year’s growth.

• That said, we tweeted the following on the back of its Q3 update:

o Merlin analysts’ meeting: Group reiterated that it will forego a year’s growth in FY15 but good stuff going on beneath surface

o MERL meeting: overall impression is of a co that has had a setback but which has underlying growth baked in for many years

• Following the China tie up we tweeted:

o 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.

• The shares, some 370p at the time (now 410p) were offering a multi-year buying opportunity that was arguably too tempting to miss.

• The shares have risen a little over 10% in the following month but, on balance, the shares still look very attractive.

Pubs code:

• Both the ALMR and the BBPA have welcomed the chance to analyse in more detail the government’s intentions with regard to free-of-tie rents.

• It’s reassuring that there will be a carve out for ‘significant investment’ but, of course, that has yet to be defined

• The devil, not surprisingly, will be in the detail and, until some of this is nailed down, conclusions will be sketchy

China, two kids. Sibling rivalry to become a thing.

• This is a big deal but, as these things take a while to cook, as it were, the impact of a younger Chinese population will take years to feed through

• Holidays may become more of an issue – but they may be foregone in the short term

• Older consumers may retrench in order to provide for (a larger number of) grandchildren

• Fast food restaurants could benefit – but not for a decade etc. etc.

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

• Pig prices now approaching multi-year lows. Red meat prices firm but white meat (pork is a fairly useful proxy for chicken) prices low, down c32.5% over the last 12mths.

• AB InBev. One of the comparatively few US$ stocks that looks good despite adverse currency translation on the back of a strong dollar.

• Ironically Starbucks, which reported overnight is another.

• So Jaffa Cakes are going to be exempted from VAT whilst bottled water still attracts a 20% tax? Go figure.

• Interestingly, unless it falls over with a vengeance, US stock markets are in for their best month since 2011

• Mortgage approvals are down. Does beg the question as to just where consumers are spending their money