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:

Terrorism & Leisure travel:

• Needless to say, the two don’t mix well.

• And the problems will luggage and with securing landing slots for airplanes sent on repatriation missions has ensured the initial phase of the crisis will not be over with as rapidly as had been hoped.

• The reaction thereafter is likely to last for years. Operators and not least their customers will favour non-North African resorts and capacity will be shifted accordingly.

• We have FY numbers from Thomas Cook on 25 Nov and TUI on 10 Dec at which time we will likely be given an indication as to how much the current disruption is likely to cost.

• As far as political fallout is concerned, the UK authorities were quick to ban flying and they will not be allowing baggage to return on the same flights as its owner.

• This suggests in no uncertain terms that the UK authorities believe the problem may be one of security as Sharm el Sheikh and that will raise questions both with regard to that destination and with regard to others.

• 10% of all Winter Sun bookings from Russia to Egypt have already been cancelled and more will follow. This amongst other things suggests that the tragedy will have longer-lasting ramifications for Egypt than it will for the tour operating industry as a whole.

Reinforcing our view re underlying trends:

• Horizon’s tells us this morning that artisanal coffee vendors continue to perform strongly.

• It also says those offering differentiated food are performing well.

• Soho House mentions that it is going to focus on chicken when it comes to restaurant rollouts.

• Goals Soccer has reiterated that tough comps caused by the FIFA World Cup in 2014 could be enough to ruin the year for some more focused operators.

JDW perhaps doing itself no favours:

• Refreshing though it is to see a group resolutely stick to its principles, it can be frustrating from time to time if you’re not completely clear on what they are.

• JDW is in the process of selling (or of otherwise disposing of) a couple of dozen leasehold pubs and it is now to sell some three dozen more.

• The total string of pubs that the group wishes to jettison may be only around 5% of total pubs (and a smaller proportion of group sales) but a slower new-openings profile and sold pubs are not what one has seen lately from JDW.

• It’s inevitable that the group will have ‘outgrown’ some of its pubs – they may have fewer opportunities re accommodation, food, breakfasts etc. – and disposals are to be expected.

• And with other operators, these may have been dribbled out at the rate of half a dozen a year or so suggesting that JDW has made a decision of some sorts regarding a) keeping some units longer than would other operators and b) selling a larger number of units all in one go.

• We do not believe that the group is struggling in its search for a strategy but do acknowledge that the bears may not be short of ammunition

Consumer spending:

• Consumers are hesitant when it comes to spending.

• Some have put this down to a period of catch-up-spending on large ticket items but others have said that it could be a more deep-seated reaction to the credit crunch.

• This would have the savings ratio rise permanently.

• With that in mind, the Observer has noted that ‘ghosts of crashes past still haunt the consumer Christmas’ and we see some mileage in this argument

• We have unemployment numbers on Wednesday alongside average earnings data.

• We would expect to see more people in jobs earning more money – but still spending remains anaemic

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

• Pity poor All Leisure Group. Problems with its ships and now issues in Egypt (again) where the group operates tours. Shares were 200p in 2008 but now sell at 7p each.

• Punch shares have been strong over recent weeks. They’re up to 137p (from 87p) in 8mths and have risen by 16% in the last 3wks. The group reports FY numbers on Thursday. It will also at that time update on its strategy post the announcement of the MRO option for tenants. Here it is likely to mirror Enterprise Inns and the group’s share price would suggest that, for the moment at least, the market is willing to focus on the merits of the group and of its assets as a whole.

• It’s Singles Day in China on Wednesday, apparently. On said day, consumers are encouraged to spend a bit of money on themselves. This can have a very material impact on spending patterns overall. It might be mostly stationery, scarves and slippers but, China, being as large as it is, there will be a few BMWs & Jaguar motor cars and Patek Philippe watches thrown into the mix.

• Sterling down steeply (particularly vs US$) on assumption of delayed rate rise here & December rise in the US. Implications for holiday companies, commodity consumers, oil consumers and the rest covered in earlier emails.

• Oil price down (in US$ terms) partly on back of stronger US$.

• Soft commodity prices lower despite El Nino (see Sunday press comments). Commentators focusing on Cocoa and Sugar which, admittedly have been strong. The former is up 17% over the last 12mths whilst sugar, after a very weak mid-year, is now only down 4%.

• IHG shares down with a bump, at time of writing down 109p (c4%) on second denial that group is in merger talks.

• SAB disposal in North America thought to be nearing. This one will be giving us something to write about for some months to come.

Langton Licensed Retail Index – Major Movers

The LRI was down 2% last week, while the FTSE all-share was broadly unchanged at -0.03% as oil and technology stocks held the wider market up.

The LRI’s biggest constituent Whitbread skewed the index down with a 4.01% fall.  SSP Group meanwhile was up 1.44% as last week travel sentiment improved, though this will likely have been undone by growing suspicions of foul play in the Egyptian plane crash.

In pubs MAB was a riser this week up 1.78%, continuing a good run of form of recent weeks having risen some 9% over the past month, while Marston’s was down 1.42% and Greene King down 0.19%.

Wetherspoon shares reacted badly to a further margin retraction at last week’s Q1 trading statement. The group’s margin was 6.2% for the 13 weeks to 25 October, having been 7.7% for the same period last year and though LfL growth was 2.5%, it’s fair to assume a chunk of this was down to pricing.   The group hasn’t announced any share buybacks yet, but we’d be very unsurprised to see them doing so in the coming days.

In the tenanted pubcos, Enterprise was down 3.72%, but Punch saw its shares up 11.47% ahead of its numbers on Thursday.  The market will likely be expecting new CEO Duncan Garrood to update on strategy, which, while unlikely to be notably different to Enterprise Inn’s own strategy update, will likely improve market sentiment.

Similarly in the London pubs, Young’s was up 3.32% ahead of its interims on Thursday, while Fuller’s saw its shares fall 5.08% (albeit on a very large spread).

Trading updates come out on Thursday from Punch, Young’s and The Restaurant Group so next week’s LRI update will likely be driven by trading news. Will Brumby – will.brumby@langtoncapital.co.uk

We’re so 21st Century, this morning’s Tweets (diff. font size denotes importance):

1. PE houses BC Partners + Equistone are reported to be the frontrunners in the race to acquire Gaucho Grill for around £100m

2. Sunday Times reports SAB is close to selling its US business for more than $10bn in a move set to clear AB merger.

3. JD Wetherspoon has put another 34 units on the market which together are generating £38m of total sales

4. Horizons’ latest Ones to Watch shows independent outlets specialising in high quality coffee with strong food offer continue to flourish

5. Soho House is focusing on the roll out of its Chicken Shop concept, which will account for around 50% to 60% of the group’s openings going forward.

6. Sainsbury’s says its food to go focused ‘micro’ store format has the potential to be expanded to thousands of units

7. Russia has followed the UK in banning flights to Sharm el Sheikh. A bomb is now thought likely to have downed flight 9268 last week

8. Goal Soccer updates on Q3 trading, says ‘trading in the UK business over the summer holiday period had been challenging.’

9. Sportech has terminated negotiations with Contagious Gaming after branding its bid approach as incapable ‘of being implemented or recommended’

10. A strong rise in US jobs to 271,000 added in October has led more economists to believe the US Fed will raise interest rates in December.

11. The National Institute of Economic + Social Research estimates UK GDP rose 0.6% in the 3mths to end Oct, a slight acceleration

12. Chinese imports fell for 12th month in a row in Oct, now down 18.8% on a year ago at $130.8bn. Exports down 6.9%