A Day in the Life:

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

What is it about coughing?

You go weeks without so much as a tickle and then, for whatever reason, you find yourself at a Remembrance Day service or are asked to listen to an important speech and you immediately feel the nagging need to cough.

And you try to hide it, of course. But that just leads to you spluttering and gagging and after that happens, you know that any victory is only going to be temporary as, once you know you’ve got to cough, well, you’ve got to cough.

But enough is enough, you tell yourself. Perhaps a discreet accelerated exhale into a handkerchief will do the trick but that’s not going to work and, at the end of the day, who carries handkerchiefs these days, particularly when they’re most likely to need them?

Hence, you do your best but the laws of physics being what they are you can be certain that, if you try to keep your mouth shut, then any air that needs to be expelled along with various other even less desirable elements is likely to come out of your nose and that’s not a good look, particularly in church. On to the news:

The News:

Pub, Restaurant & Drinks Producer News:

• PE houses BC Partners + Equistone are reported to be the frontrunners in the race to acquire Gaucho Grill for around £100m. Some may suggest that that’s a pretty challenging price for an 18-strong chain of leasehold restaurants.

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

• JD Wetherspoon has put another 34 units on the market which together are generating £38m of total sales and an average weekly turnover of £22,000. The sites are located in town and city centre locations across England, Scotland and Wales.

• The ALMR has questioned the APPG’s inquiry into alcohol harms and is calling for a more balanced approach to alcohol. ALMR Chief Executive Kate Nicholls said: ‘We are disappointed that the APPG’s inquiry doesn’t take more of a balanced approach and fails to acknowledge the wider economic benefits or the hard work the sector has been undertaking. We are concerned that the inquiry is adopting a default position that alcohol is, per se, a negative influence.

• ‘Pubs, bars and nightclubs are vital sources of revenue for their local areas and their economic contribution should not be discounted. There also needs to be a distinction between the highly regulated, supervised environment of the on-trade and the unregulated world of off-trade alcohol.’

• Horizons’ latest Ones to Watch survey shows that independent, artisan outlets specialising in high quality coffee with a strong food offer continue to flourish. The biannual survey puts coffee shops in its number one slot in terms of percentage growth over the past three years, and anticipates further expansion of this sector.

• Horizons’ analyst Nicola Knight commented: ‘We have adopted the coffee purchasing habit, but this third generation of artisan coffee shops is now bringing a higher quality product to the high street often with a health-conscious, home-produced food offer that is appealing to today’s consumer.’

• The Ones to Watch survey shows that Mexican brands continue to be the second strongest growth area, making their appearance on high streets, shopping centres and transport hubs in the guise of burritos, tacos and nachos. Brands such as Barburrito, Benito’s Hat Mexican Kitchen, Chilango and Chipotle Mexican Grill make up a sector that has seen growth of 146% over the past three years.

• More from Horizons. The food to go sector is worth some £22.2bn, according to M&C Allegra Foodservice’s latest Food to Go Quarterly Report. Food to Go is outperforming the wider eating out market, with lunch and breakfast showing themselves to be key trading times. The majority of visits to food to go outlets in Q3 2015 were to McDonald’s for breakfast and Greggs for lunch.

• 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.

• A survey by Hospitality GEM of 820 diners found that hotels are ‘missing out’ on potential customers who avoid overpriced hotel restaurants. The stud discovered that 64% of respondents eat out more than five times a month, while only 15% do so in a hotel they are not staying in.

• Sainsbury’s says its food to go focused ‘micro’ store format has the potential to be expanded to thousands of units. The format, whose first trial is in Hoborn and which focuses on food to go products such as sandwiches, breads, salads and ready meals, could triple the retailer’s number of c-stores.

Travel & Hotels:

• 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. Re the Egyptian tourism industry, Guevara al-Gafy, head of the Southern Sinai Chamber of Travel Companies said ‘the blow will not be slight, especially because it is the beginning of the winter season. We were expecting a good season, but now we don’t know.’ The official reported that c10% of Russian bookings to Sharm have already been cancelled last week.

• STR research points to ‘significant’ growth in London for Airbnb and increasingly higher rates than conventional hotels. With Airbnb’s largest share of total accommodation (some 12% of all listed London accommodation) falling in the £300-£399 a night bracket, only Westminster, Hackney and Lambeth offer average daily hotel rates that are more expensive than the room sharing site.

• Surging summer theme park visits helped drive Disney’s Q3 net profit to $1.6bn from $1.5bn in the July to September period last year. Parks and resorts revenue rose by 10% to $4.4bn and the division’s operating profit was up by 7% to $738m thanks to higher average hotel room rates, ticket prices and theme park admissions.

• The Board of Directors of IHG reported Friday it is not considering a potential sale or merger of the company. Further press comment suggesting that the group could be looking at a merger with a global rival prompted both a further rise in the group’s share price last week and a comment this morning from the company reporting ‘following recent market speculation, the Board of Directors of IHG states that it is not considering a potential sale or merger of the company.’

Other Leisure:

• Goal Soccer updates on Q3 trading, says ‘trading in the UK business over the summer holiday period had been challenging.’ The group reports ‘whilst we have made progress since 9 September, delivering week-on-week sales improvements, the speed of this recovery has not been at the level anticipated. In view of this, the Board now anticipates that profit before tax for the current financial year will be in the range of £8.2m to £8.6m, predicated on the absence of adverse weather conditions.’

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

Finance & Markets:

• 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.

• World markets: UK mixed Friday. Europe and US up and Far East up in Mon trade.

• Oil down a little over the weekend, now trading at c$47.80 per barrel.

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

• 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%

• UK manufacturing output increased by 0.8% in September for its largest monthly rise since April 2014, according to the ONS. The UK goods trade deficit also fell from £10.79bn in August to £9.35bn in September.

• German industrial output had its sharpest decline in a year in September after production fell 1.1% month-on-month.

Leisure – The Week Ahead

It’s November, and the beginning of a busy reporting season for the leisure industry. 

Unemployment data comes out on the 11th. The unemployment rate hit its lowest levels for seven years last month, with a rate of 5.4% for the three months to August.

Thursday is busy with numbers from Young’s, The Restaurant Group, Punch Tavern’s and SAB Miller.

Punch’s full year results come out on Thursday the 12th.  The group sold a package of 158 pubs to stonegate and others last month, indicating there may still be a way out of the bottom end of tenanted estates. The group also completed the sale of its 50% share of Matthew Clark to Conviviality Retail last month, which will be a welcome £100m.  Vianet’s poor trading update last month may indicate trading has been tougher at wet led pubs, but all remains to be seen on Thursday.

SAB has its interims on Thursday, though in light of the recent bid by AB InBev, the numbers this week may be academic.  Heineken saw trading improve last month with sales strong in Europe, the America’s and Asia Pacific, with trading flat in Africa, the Middle East and Eastern Europe.

The group’s stake in Miller Coors may be up for sale at the behest of the world’s competition authorities, but recent poor trading at the JV may impact a potential sale price.

Retaurant Group has a Q3 trading update.  There has been recent speculation on a potential merger with Mitchell’s & Butler’s, however we’d argue that TRG would have relatively little to gain from a tie up, and MAB’s estate doesn’t match TRG’s leisure park opening strategy.   At the group’s interims in August, the group showed decent LFL growth of 2.5%.  The group plans to open 43-48 sites this year and has opened 21 so far 9 of which were in Q2.

Young’s also has interims on Thursday.  The group’s shares have been very strong recently though there are concerns over the London market becoming overcrowded, albeit more in the leasehold casual dining than the freehold pub market. Will Brumby – will.brumby@langtoncapital.co.uk

Langton Food Retail Index – The Grocer’s Dozen

The Food Retail Index outperformed the wider markets in the week to 6 November, thanks to strong moves from Conviviality Retail, Ocado and Marks and Spencers.

Grocers

Investors responded favourably to Marks and Spencers’ H1 results to 26 September despite mixed figures and a 1.2% drop in general merchandise sales raising questions over the breadth of its recovery. CEO Mark Bolland attributed the continuing sales decline on poor summer weather, particularly in the final three months of the period.

The group turned to other areas, including tightening supply chains and reducing discounting, to help drive 6.1% profit growth to £284m with total sales up a per cent to £5bn. Profit margins widened by 285 basis points thanks in part to the appointments of Mark and Neal Lindsey, who were brought in last year to improve sourcing and are rumoured to be getting paid more than the retailer’s board members. It means full-year profit margins will be up by between 200 and 250 points. Bolland stressed that more efficiency gains could be expected next year and would not be at the expense of quality.

Shares remain c10% off recent highs at 542.5p after rising 5.99% in the week to 6 November. With a promised two and a half more years of improved profits over sales to come, the group’s valuation of 16.4 times earnings falling to 15.6 appears reasonable for what remains a UK high street giant.

Ocado also had a strong week, up 6.2% and shares in the online grocer now rest at 400.15p after rising over 20% since late September.

Specialty/Wholesale

Bargain Booze operator Conviviality Retail was the strongest of the bunch though, up 9.85% to 206p. The group’s recent acquisition of Matthew Clarke could prove transformational and shares in the operator have rerated by over 25% over the last three months. However competition in this end of the market is intense and boundaries are becoming blurred as larger operators such as Sainsbury’s continue to innovate with new store concepts. We suggest there are clearer opportunities elsewhere. Jack Brumby – jack.brumby@langtoncapital.co.uk

Retail Roundup from Nick Bubb:

Saturday Press:
The new John Lewis Xmas TV ad that aired on social media on Friday was still a big talking point in the Saturday papers, with the Guardian flagging that the tear-jerking “Man on the Moon” ad had generated a sensational response on Twitter, but the new Marks & Spencer Xmas TV ad also came out on Friday, for “Sparks” card holders, and the Times and Guardian noted that M&S claim to have added 200,00 new cardholders over the last 3 days, to take the total to 2m, and that the new ad is designed for the short-attention span of mobile users. The Telegraph took the opportunity provided by the M&S ad launch news to run a prominent fashion model photo on its main Business news page. A Guardian columnist looked separately at M&S’s waning appeal to even older shoppers for clothing and concluded that M&S is “a little too sensible for
its own good”. In other news, the Times noted that the French retailer Fnac has raised its offer for Darty in an agreed deal that would create a French market leader in white goods. And the FT had a detailed article about Amazon’s first foray into “bricks and mortar” retailing last week with the launch of Amazon Books in Seattle, noting that the bookshop market is reviving.

Sunday Press (1):
Marks & Spencer remained in focus in the Sunday papers, although this time the issue was its embattled CEO Marc Bolland and the outlook for Xmas. The main Business story in the Mail on Sunday was that Marc Bolland has publicly stated that he plans to remain at the business for the foreseeable future and will refuse any pay rise from M&S, whilst the Observer noted the unusually large write-offs on UK store assets announced by M&S last week as part of its new “neutral” Non-Food space policy. The Sunday Times also hooked a general profile of the upcoming Xmas trading period around the headline “Marc is 56, but he still believes in Santa Claus” (complete with a photo of his face superimposed on an extract from one of the M&S Xmas TV ad shots), noting that, although Marc Bolland appears to be cautious about current trading, M&S can’t
afford to lose out again this Xmas. On that note, there was an interesting Economics column in the Observer noting the weak state of consumer spending (“Ghosts of crashes past still haunt the consumer Christmas”). Roger Whiteside, the CEO of Greggs, was interviewed in the Sunday Telegraph, highlighting that the chain has grown to become the second biggest seller of sandwiches behind Tesco in the UK, but that Greggs will struggle to grow Overseas (“A big part of our business is still sausage rolls and pasties, and there is nowhere else in the world that eats sausage rolls”. The Sunday Telegraph also noted that Standard & Poor’s has downgraded Matalan’s rating from ‘weak’ to ‘vulnerable’, citing concerns about the excessive debt pile after it posted a big fall in EBITDA in its Q2 report last month. And there were lots of
previews of the falls in interim profits to be reported by Burberry and Sainsbury next week.

Sunday Press (2):
The Sunday Times also featured the news that Sports Direct’s Dave Forsey has been “the best value-for-money CEO” in the FTSE 100 over the past four years, according to specially commissioned research. The News pages of the Sunday Times had an overview of all the Retailer Xmas TV ads, noting that this year retailers – with the exception of John Lewis – have started to abandon so-called “sadvertising”, in favour of more buzzy and upbeat ads (the Sunday Times also had a panel of advertising experts score the Xmas adverts a mark out of ten: John Lewis came out on top with a score of nine, Lidl’s ad was awarded a seven, Asda and Waitrose both achieved a six, Marks and Spencer and Aldi scored five, while Morrisons and Boots fared the worst collecting only a four). The News pages of the Sunday Times also flagged that the Channel 4
“Dispatches” series will reportedly reveal tomorrow night, in a programme called “Aldi’s Supermarket Secrets”, that staff at Aldi compromise on customer service and product quality to meet productivity targets.

Grocer Watch:
The main front-page feature of Grocer magazine on Saturday was on “the good, the bad and the ugly” aspects of “Black Friday”. As far as the widely followed Grocer “33” weekly supermarket pricing survey is concerned, the Grocer highlighted that Asda was the winner as usual, but that the race was very tight, once all the price-matching schemes were factored in: after an instant cash-back of £3.20, via the Brand Guarantee Scheme, the Tesco basket of £59.62 put Tesco in 2nd place again in this week’s survey, just 84p behind Asda’s basket of £58.78. Waitrose was a distant 5th again this week on £70.01. And the separate Grocer “Mystery Shopper” survey on Store Service and Availability was won this week by Tesco, as their big 84,000 sq ft Tesco Extra store in Poole topped the rankings, with a decent score of 84 out of 100.

News Flow This Week: The big event this 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 tomorrow (with LFL sales growth expected to drop back to c0.7%), 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 – 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:

Terrorism & leisure travel:

• The BBC reports it has learned that UK investigators looking at what caused a Russian airliner to crash in Egypt believe a bomb was put in the hold prior to take-off

• The UK government suspended all flights to and from Sharm el-Sheikh on Wednesday

• Repatriating UK holidaymakers will be the first priority – and then tour operators will have to take a view on how long the suspension may remain in force & adjust their stock accordingly

• This is expensive and worrisome for customers

• It’s not been a good year as regards disruption and, coming only four years after the Arab Spring, events in Tunisia and now in Egypt will have done little to rehabilitate North Africa as a leisure destination

• The BBC reports the UK government (despite Egyptian & Russian criticism) as saying the incident was likely to be have been caused by terrorism. It says the government received intelligence based communications between militants in Sinai.

• Thomas Cook shares fell by 7% yesterday and, whilst this is understandable, it is perhaps a little severe

• Because leisure travel will remain a growth industry. It is aspirational and there are other destinations. The Canaries, Florida and even Thailand could see something of a continued (post Tunisia) boost in the Winter Sun market and the market will stabilise.

• And in the medium term, Thomas Cook’s tie-up with Fosun could be very interesting indeed. The group has said that it has commenced operations (re inbound and outbound Chinese tourism) and Fosun is yet to buy more TCG shares in the market.

• Longer term, it would not be surprising to see Fosun acquire more shares or even to take control of the Thomas Cook group completely.

• TCG shares are currently trading on a (partly recovered) FY16 PER of 10.4x earnings.

UK interest rates:

• Bank has held rates, talk now of increase being delayed further.

• Only a few weeks ago, talk of delaying a UK rate increase into 2017 would have been dismissed as foolish.

• But now it is gaining traction as talk of the global slowdown takes a hold.

• Interestingly, the UK market did not react positively to yesterday’s dovish comments and today we have Savills saying that delaying a rate rise runs the risk of distorting the property market.

UK property market:

• House prices in London are bonkers. UBS said the London property market is the biggest bubble in the world. Savills, whose financial interests may be said to lie on the opposite side of the argument, has said that delaying rate increases runs the risk of puffing up asset prices too high.

• Foxton’s share price moved from 400p to 150p. We missed a trick, there. It then rallied to 280p but is now 180p.

• London A3 & A4 rents are similarly ludicrous. Coffer Corporate Leisure, whose financial interest may also lie on the bull side of the argument, has said that ‘even tall trees do not grow to the sky’ and operators may struggle to pay higher rents.

• We are aware of premiums of up to £12m being asked for restaurant leases. In another case, a £700k premium is being asked for 1k square feet of ground floor space.

• Small restaurant (c1,500 feet) rents may run to £130k or £150k. Rents in hot spots will be much higher but in order to justify £150k of rent (say £250k of occupancy costs) a unit may need to turn over perhaps £30k to £50k per week.

• The list of 1,500 foot units doing £2.5m per annum could arguably be written on the back of a (small) envelope.

Housing in the big-ticket, small-ticket debate:

• We’ve suggested for a while that big-ticket spending has eclipsed spending on affordable treats.

• This should be temporary & may have worked its way through the system by as soon as the end of this year.

• When we’ve mentioned big-ticket items, we’ve typically meant houses, furniture, carpets & holidays but, arguably, the biggest ticket of all is housing – be it mortgage payments or rent.

• And here, despite interest costs being low, overall costs have been rising on the back of a strong housing market and rising rents.

• The above represents enforced savings and, as long as the recipients of the house proceeds do not blow it all on consumption, it represents a withdrawal from the economy.

• This ‘enforced savings’ may not be an altogether bad thing. But it could be part of the reason as to why higher wages etc. are not feeding through immediately to higher levels of spending.

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

• At the time of writing (c10am) the market is holding its breath ahead of US non-farm payroll numbers due at lunchtime.

• Sterling down on rate-delay concerns. The arguments re higher commodity prices, imported inflation, holiday costs etc. are well-rehearsed.

• Interestingly property owner Intu this morning says ‘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.’

• Re Black Friday, Retail Week reports ‘Asda in radical rethink over Black Friday plans.’ It is being suggested that Asda, part of the Walmart Group, will make much less of a fuss this year.