Langton Capital – 2015-11-06 – Miller Coors, Sharm disruption, interest rates & other:
A Day in the Life:
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So if it came to a vote, and I’m trying to think of a way to put this politely, who would come out as the biggest sanctimonious, holier-than-though, I’m tomorrow, you’re yesterday sort of person, Bono or Sting.
Because, whilst South Park seems to favour the former, I came across an old Paxman interview with Sting that boosted his chances of taking the title. It’s here if you’d like a look.
Described as the ‘granddaddy of environmental activists’ he admitted to having a carbon footprint the size of the planet and more houses than there are continents. He didn’t attend his mother’s funeral because of fears of press intrusion here. But then he didn’t go to his dad’s either saying that he wasn’t equipped to because he had allowed his ‘emotional evolution to be stunted by the shallow and tepid waters of popular culture’, whatever that means. Why use one word when 10 will do, he said. He said. He said. On to the news. .
Pub, Restaurant & Drinks Producer News:
• Miller Coors Q3. Reports 8.6% lower underlying net income but higher net revenue per barrel. Reports net income of $344.4 million vs same period in the prior year ‘driven by lower volume and increased marketing investment, partially offset by lower cost of sales, positive sales mix and net pricing growth.’ Group adds ‘for the second consecutive quarter, Coors Light and Miller Lite both gained market share of the Premium Light segment, with Miller Lite delivering volume growth. Combined, Coors Light and Miller Lite delivered their best quarterly performance in three years.’
• Miller Coors CEO Gavin Hattersley reports ‘as we relentlessly pursue total portfolio growth, job number one is taking share and growing our American Light Lagers.’ He adds ‘we have a lot of work ahead of us to address our economy segment performance, but all other segments across our portfolio are in good shape as we close out the year. Net income was down this quarter due to lower volume, partially due to bringing distributor inventories down as anticipated coming out of peak-selling season, and increased media investments across our brands.’
• Diageo has sold its wine interests in Argentina to Grupo Peñaflor for an undisclosed amount.
• Ruby Tuesday says it will sell 8 corporate-owned locations + close its remaining 11 own-restaurants to concentrate on franchising. Group says it will operate the 8 locations being sold as Lime Fresh Mexican Grills until the transaction closes. CEO JJ Buettgen reports ‘as we consider Ruby Tuesday’s future, we believe it is in our shareholders’ best interest that we exclusively operate our namesake brand restaurants.’
Travel & Hotels:
• Sharm disruption + bomb fears set to hit Egypt’s struggling tourism industry, which had been struggling to recover post Arab spring. FT quotes John Grant of OAG, an aviation consultancy, as saying ‘the recovery will take a degree of time. Through the winter season the popularity of the destination is quite high so UK operators will be hoping to see a rapid resolution of the issues and once again be able to sell the resort to their customers.’
• PM David Cameron has said it could be “some time” before all UK tourists are repatriated from Sharm el-Sheikh
• Expedia agrees to buy vacation rental site HomeAway Inc for c$3.9bn. Deal to close in Q1 next year
• IATA says global airline industry should finish the year in positive territory. Passenger numbers +7.3% y-o-y in Sept.
• Easyjet reported yesterday that carryings last month were +10% on Oct 2014.
• Uber is to commence operations in Edinburgh.
• IAG reports fresh goals for 2016-20. Is aiming for 15% return on capital, operating margin of 12% to 15% and EPS growth of 12% p.a.
• Disney yesterday reported Sept quarter numbers ahead of market expectations on back of strong cable earnings.
• Disney: Group earned 95c per share in Sept quarter vs 86c last year. Underlying EPS was 120c (vs estimates c114c). CEO Bob Iger reports ‘we like the environment because we think long-term it gives us more opportunities.’
Finance & Markets:
• B of England holds rates at 0.5% amid comment that it will hold rates at that level throughout 2016.
• UK base rates, Bank says outlook for global growth has weakened, prospect of inflation picking up is a distant one. Vote was (again) 8-1 and betting is on a Q2 2016 rate rise – with some commentators daring to favour 2017.
• EU forecasts economic recovery within European Union + eurozone should continue at “a modest pace” next year, suggests 2.0%
• UK house price growth picked up in Oct per Halifax. Says prices +9.7% in the year to Oct vs an annualised 8.6% in Sept. Halifax economist Martin Ellis said ‘improving economic conditions and household finances, together with sustained low mortgage rates, have boosted housing demand during 2015.’ He adds ‘strengthening demand is filtering through into higher sales levels, although the ongoing shortage of supply is acting as a significant constraint on activity.’ The Halifax believes excess demand was ‘maintaining upward pressure on house prices’.
• World markets: UK down yesterday but Europe higher. US shares traded down + Far East down in Friday trade
• Oil down a little over last 24hrs, trading at $48.20 per barrel
• Savills has suggested that delaying interest rate rises for too long could allow house prices to grow at an unsustainable pace. It says ‘if rates remain too low for too long house prices could rise to a level that would become unsustainable if rates were subsequently to rise sharply’.
Retail Roundup from Nick Bubb:
Intu Properties: The shopping centre giant Intu (of Lakeside, Metrocentre and Trafford Centre fame) has been under the cosh a bit compared to its peers in the industry, with tenant failures and the rent review cycle impacting on net rental income, but its Q3 IMS today is notably more upbeat, with CEO David Fischel saying: “The economic recovery is now more obviously rippling out from London and the South East to other regions of the UK and our prime centres across the country are seeing strengthening underlying retailer sales performance. As this translates into improved demand for space and rising occupancy, we look forward to a return to like-for-like net rental income growth for 2015 and are well positioned for a more meaningful uplift next year”.
Today’s Press and News:
BDO High Street Sales Tracker: this weekly High Street sales index of medium-sized Non-Food chains assembled by the accountants BDO is a useful guide to underlying Fashion store trading momentum, even though it excludes Online sales. Fashion LFL sales have been surprisingly poor in recent weeks, despite weak comps, but BDO has reported today that last week, w/e Nov 1st, saw better trading, with overall Fashion store LFL sales up by 3.1%, helped by cooler weather compared to last year (when the very mild weather sent LFL sales down by 5.5%). Total store LFL sales were up by 2.0% (including Lifestyle and Homewares retailers) and overall Non-Store/Online sales were again somewhat unremarkable, up by 14.8%.
Trade Press (1):
Trade Press (2):
News Flow Next Week: The big event next week is the Sainsbury interims on Wednesday, but there’s plenty of other stuff going on. The BRC Retail Sales survey for October is out first thing on Tuesday, along with the Land Secs interims, whilst Wednesday also brings the FNAC bid deadline for Darty and the Marks & Spencer Spring/Summer range preview. Thursday then brings the Halfords interims and the Burberry interims. Nick Bubb – firstname.lastname@example.org
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:
• JDW closed at its lows yesterday and has given up another 10p or so this morning.
• At the time (c10am) there has been no RNS to suggest that the group has been buying its own shares back.
• It said yesterday (re its reduced rate of new openings) that it had ‘other uses for its money’.
• Certainly it is buying in freeholds where it is the existing tenant & where it gets the opportunity but, if it’s not buying its shares back at a price down 10% in just over a day, what does that suggest for the rest of us?
• We remains supportive re JDW but, as there is a lack of obvious catalysts and the bears seem to be in receipt of a steady flow of ammunition, we’re keeping our heads down for the time being.
London restaurants, oversupply etc.:
• David Coffer, Fleurets, Harden’s and the evidence of our own eyes have suggested that there is a lot of capacity going on in London.
• Mr Coffer said that even tall trees cannot grow to the sky.
• Rents have reacted accordingly. Inside the Circle Line is fast becoming a no-go area for other-than trophy buyers (or renters) of ‘must-have’ sites.
• But the truth is, you don’t need to be in Soho. Or in Knightsbridge or The City or wherever because, though it’s good to perhaps have a flagship, good returns can be made in the inner-outer boroughs and areas such as Shoreditch, Bermondsey, Hoxton etc.
• And, increasingly, in Stoke Newington, Lewisham, Kilburn etc.
• The number that jumped out at us in the Morrison’s statement was the comment that 2yr deflation now amounted to some 5.3%.
• Because that’s a lot and, for the consumer using MRW (and, to be fair, its competitors), it represents a major windfall.
• IGD says the UK grocery market is worth £177bn (year to March 2015).
• If other operators have behaved in line with MRW, that suggests the consumer is spending c£9bn less on groceries than he/she was 2yrs ago.
• The PPI ‘scandal’ has thus far put £33bn in the pockets of consumers but, arguably, this has been often spent on big-ticket items.
• Furthermore, PPI, one would hope, is a one-off whilst the consumer’s grocery savings could be permanent – or at least stretch over a number of years.
• This, once the consumer has become a little bit more confident, should be helpful for small ticket retailers such as the UK’s pubs, clubs and restaurants
• McDonald’s is going to sell ‘better burgers’, Burger King is selling booze.
• Evolution continues at a pace and, whilst the pubs etc. are going into breakfasts and coffees, it probably pays to remember that few operators trade in a vacuum and that competitive responses from even the most unwieldy of operators is always likely.
• And this, spreadsheets find hard to model.
• The Sharm news is not good for tour operators.
• Whilst the Egyptian market is not amongst the largest in Europe, it is nonetheless important re winter sun, etc., and, as such, any re-scheduling of flights etc. that becomes necessary after the UK flying ban, could be costly.
Random information, hopefully not all of it useless (re most leisure operators etc.):
• US$ a little stronger on the back of the Fed suggesting it will grasp the nettle in December. Oil price & some other commodities down both 1) on the news & implications re global growth and 2) on the basis that the non-US$ price of the commodities involved would have risen if the US$-denominated price didn’t fall.
• Sterling nonetheless up against the Euro.
• Pig prices now extremely low, down c38% over the last 12mths.
• Precious metal prices down a little on, well, your guess is as good as mine.
• MRW’s negative LfL Q3 was apparently the 15th negative quarter on the trot.
• Interesting to see that even M&S has seen its food margin decline. Waitrose has recently reported slower and even negative LfL sales progression suggesting that the battles happening further down the food chain are having something of an impact.