Langton Capital – 2015-11-03 – Daily Wrap: Restaurant failures, big ticket spending, Sterling & 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:
More restaurants failing than in depths of recession:
• See earlier email – accountancy firm Moore Stephens claims that the number of restaurants going out of business last year was 50% higher than during the recession.
• It quotes numbers but, taking there veracity as read, this is an interesting situation.
• It fits in with our suggestion that it is possible for an industry to grow whilst a number, maybe even a large number of its incumbents have a hard time.
• New entrants will be causing a part of the problem.
• In addition to which, UK pubs are muscling their way into the VFM end of the market.
• They increase the number sites that need to generate income & may depress LfL sales (whilst headline sales rise).
• This would appear to be the case as the difference between the Coffer Peach Tracker’s measure of LfL vs total sales has recently been around five percentage points.
• And labour costs and particularly rents (in London and also elsewhere) are rising meaning that, even if sales hold up, profits may not.
• We would favour, where it’s possible to invest in them, dynamic new entrants.
Big ticket spending:
• Pendragon (following Lookers on Friday) suggests that the car market is buoyant.
• It comments “the performance of the Group is in line with expectations for the full year, which were upgraded in August”.
• Interestingly, however, it says ‘we believe the UK new car market has reached its natural level’ of around 2.6m cars.
• This would suggest that Sainsbury and others may have a point when they suggest that the small-ticket companies (pubs, restaurants, food retailers, general retailers etc.) could be set to see a pickup in spending towards or just after the end of this year.
• The Pound has had a strong few days as the international currency markets have weighed the chances of the Bank of England putting up rates against the likelihood of similar moves by the Fed and/or the ECB
• Sterling is up against both the US$ and the € over recent trading sessions and, re the €, it is almost back to the recent highs seen in the late summer.
• Movements against the US$ clearly impact the Sterling cost of commodities (not least oil) and affect the Sterling equivalent profits for US$-denominated earnings being translated by UK companies into GBP.
• The former is broadly positive for margins whilst the latter is negative on translation.
• Sterling strength against the € impacts the bed-buying costs of tour operators (positively but after a lag as the next season – and often the season after that – have been mostly committed) and impacts immediately (positively) the on-the-ground costs faced by holidaymakers when they are in resort.
• To the extent that holidaymakers bring some cash home, this may also positively impact UK pubs & restaurants
AB Foods, loading too much onto Primark’s shoulders?
• ABF down on its numbers but shares incredibly strong over the last 3yrs.
• Is too much being loaded on the back of Primark?
• Can the latter crack the US and, whilst it’s trying to do so, how will Walmart respond?
• Shares are on a mid-30s PER. That’s not a typo.
• There are no bid rumours out there that we’re aware of but, though a market cap of £27bn doesn’t make it bid-proof (witness SAB Miller), when Tesco has a market cap of £15bn, there aren’t that many potential acquirers out there.
• This suggests that the market cap needs to be supported by earnings rather than speculation of this sort.
Random information, hopefully not all of it useless (re most leisure operators etc.):
• Oil price down a bit, precious metals ditto.
• Sugar price staging a major rally. Sentiment may be against the product but it remains an input in many processed foods. The sugar price is now down only around 3% over the last 12mths.
• Just Eat shares down 6% on what look like stellar Q3 numbers. The shares may become overvalued from time to time but go figure.
• Thomas Cook getting a bad press for selling holidays cheap. Corfu tragedy still a very unpleasant episode but can’t help thinking that the company, nearly a decade and at least two management changes and a financial restructuring later, isn’t being a little unfairly judged.
• Perfect markets? Well hardly. The market is what it is but how can commodity stocks perform in the way they do when the market should have been anticipating the commodity cycle? And now we have STAN issuing paper after its shares have fallen by two thirds over the last 5yrs. Its shares, apparently, have tracked (in a much exaggerated fashion) the slowdown in East Asia when they should have taken it into account years ago.
We’re so 21st Century, this morning’s Tweets (diff. font size denotes importance):
1. Just Eat updates on Q3, says has seen ‘another period of excellent growth’. Has ‘delivered orders ahead of management expectations’.
a. Just Eat reported sales +64% in Q3 or +48% LfL. Year to date reported sales +57%, LfL sales +47%
b. Just Eat Q3: UK order growth +50% y-o-y. Says it was ‘benefitting marginally from poor weather over the summer’. Some 74% of orders via mobile devices
c. Just Eat ups guidance. Expects FY revenues of above £240m (previously £230m). EBITDA should be in line
2. Texas Roadhouse reports Q3, says sales $438m +15%, net income $30.6m, EPS 29c vs 27c last year
a. Texas Roadhouse reports ‘comparable restaurant sales increased 6.9% at company restaurants and 7.7% at franchise restaurants’
3. Kona Grill Q3: Restaurant sales +19.6% to $35.9m with LfL sales +1.6%. Net loss of 13c per share vs 2c earnings last year.
a. Kona Grill marks ‘tenth consecutive quarter of positive same-store sales’ with positive comps in 20 of the past 21 quarters
4. Nearly two-thirds of UK operators responding to Horizon’s latest Eating Out-Look survey say their food sales are up year-on-year
5. Accountancy firm Moore Stephens says number of restaurants going out of business last year was 50% higher than during recession
6. Morgan Davies-led Barburrito has agreed to acquire five-strong Scottish rival Punto Mexican Kitchen for an undisclosed amount
7. Asda and Tesco lost share of the entertainment market in the past quarter, down 11.2% to 9.2% and 0.3% to 15.7% respectively
8. Review into Thomas Cook post Corfu deaths suggests may have lost touch with customers, 25% of complainants take their complaint to law
a. Greek tourism minister Elena Kountoura said 18m tourists should visit the country in 2015 vs 15.3m in 2014
b. Visitor numbers to Turkey have fallen by 2% in the first nine months of the year per Turkish Tourism Office
9. Global manufacturing growth rose to a seven-month high in October but remained low despite factories steeply cutting prices