A Day in the Life:

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

I tend to drift around the supermarket reading a book on my phone and causing pedestrian jams wherever possible but, when I’m not manfully clogging up the aisles, I like to observe my fellow shoppers from time to time.

And you quickly learn to identify a number of ‘types’.

There’s the ‘man-on-a-mission’, for example. The ‘I-told-you-I-could-do-it-in-15-minutes’ type of person who steams around at about four miles an hour grabbing stuff from the shelves left and right, never checking prices, never putting anything back and then there are the more thoughtful types.

They float hither and thither and put about a quarter to a third of the things they pick up in their trolley. I mean each to his own but you want to give them a shake, don’t you and then there are the be-scowled teenagers with their arms folded, the bickering retired couples – how-did-I-manage-for-40yrs-before-you-retired-George – etc. etc.

Anyway, I could go on but here’s a question for you, what’s your favourite financial book? Is it a bio? Warren Buffet, Fred Goodwin or is it a comedy or a tragedy? Same thing, really, the recent history of Lehman Bros, RBS or the like or is it The Big Short (film coming out next year) or the Bernie Madoff bio? On to the news:

The News:

Pub, Restaurant & Drinks Producer News:

• ICAEW/Grant Thornton business confidence survey shows confidence at lowest level since 2013, says post-Election honeymoon now over. The survey says ‘business confidence has fallen to its lowest level since 2013 as uncertainty for the year ahead impacts on acompanies’ plans for the future.’ It adds that the monitor ‘suggests economic growth is slowing, continuing reliance on domestic demand, with little evidence of a rebalancing towards exports and manufacturing.’

• Confidence: Index +15.6 in Q3 vs +22.4 in Q2, says ‘worryingly, capital investment growth continues to fall + is expected to slow further’. The ICAEW says ‘after a post-election bounce, confidence has fallen further. The political honeymoon is over and George Osborne will need to remember this when delivering his Autumn Statement later this month. Although business confidence remains in positive territory, a number of factors cannot be ignored. Business investment is muted, skills shortages are becoming more of a challenge and staff and salary increases for 2016 are lower than for the last 12 months and the outlook for exports remains poor. Any announcements from the Chancellor impacting on business could send confidence falling, especially as the Apprenticeship Levy, Living Wage and increase in Insurance Premium Tax are yet to come into effect.’

• Confidence Index: Grant Thornton says ‘growth over 2015 as a whole is looking solid, though weaker than 2014’s stellar performance’. It adds ‘confidence, while down on last quarter, remains in positive territory. Despite slowing, corporate profitability remains strong and business needs to invest in innovation and new ideas to ensure a more sustainable and vibrant business environment in the UK.’ It says there is little evidence of confidence in the north of the country saying ‘Northern England and the East and West Midlands are experiencing a confidence decline, despite the focus from Government on the ‘Northern Powerhouse’ and the opening of projects such as Resorts World Birmingham.’

• Economic backdrop: Given normal business cycle, a slowdown is on cards. It doesn’t feel right, does it but the recession was 6yrs ago

• M+C reports founder of Ignite Group Matt Hermer, is working on a larger diner format and is close to securing a second site

• Nando’s owner Capricorn Ventures is reported to be close to selling its Gourmet Burger Kitchen operation says Sky News. Sky says ‘Capricorn Ventures, a South African vehicle, has been holding discussions with advisers about a review of options for its ownership of GBK.’ It adds ‘the talks are said to be at an early stage and may yet not lead to a decision to sell the upmarket burger chain, which operates more than 60 sites across the UK.’ Capricorn bought Clapham House in 2010.

• Diageo announces it is to launch an experimental whisky operation, Whisky Union to produce unorthodox whiskies

• Entrepreneurs John Hunt, Steve McCarney + David McGowan have acquired Broughton Ales, Scotland’s ‘original craft brewer’. The trio say they ‘plan to invest in developing the business to realise its potential in the fast growing and evolving craft beer market in Scotland. John Hunt says ‘we plan to invest in the business to build a stronger presence in the growing craft beer market in Scotland to make our brands more accessible to a wider audience including younger consumers attracted to cask beers for the first time.’

• Hydes yesterday launched a new company logo and new pump clips in a move to refresh its range of popular cask ales.

• PMA reports Fair Pint campaigner Simon Clarke as saying ‘heaven forbid [the large pubcos’] tenants might actually make a decent living.’

• Report by Institute for Fiscal Studies says young people could actually be be poorer than their parents at every stage of their lives. It says ‘despite the financial crisis, household wealth on average increased in real terms over the late 2000s, driven by increases in private pension entitlements.’ It adds ‘even with these increases in average wealth, working-age households are at risk of being less wealthy at each age than those born a decade earlier.’

• Domino’s Pizza Group PLC announces Paul Doughty, CFO, has resigned + will step down from Board at end-December. It says ‘the company has started a process of recruiting his replacement and will update the market accordingly. In the meantime David Wild, CEO will assume responsibility for the Group’s finance activities, supported by the internal team.’ It adds ‘the Board takes this opportunity to reiterate the outlook statement from 14th October 2015 which highlighted the strong performance of the business during the third quarter and the solid start to the fourth quarter. The Board remains comfortable with current market expectations for full year 2015 results.’

• Urban Outfitters has purchased a pizza restaurant. Group’s shares fell 10% on the news, which was interpreted as a possible distraction

• Waitrose has opened its 100th store in London

• Poundland has released H1 results for the six months to 27 September, with LfL sales down 2.8% in the period and underlying EBITDA fallign 18.5% to £16.8m. Underlying diluted EPS has tumbled by 25.8% to 2.85p. The group is accelerating its integration of the newly-acquired 99p Stores estate on the back of the poor numbers and has raised its UK & Ireland store target figure by 40% to 1,400. The introduction of the National Living Wage has also hurt the company, which is forecasting a £4.3m increase in its cost base in 2017 as a result of the increase in pay for employees.

• PLND. Management has understandably focused on the potential of the 99p Stores acquisition but the chairman admitted that the group ‘traded through the first half against an exceptional period last year’ while CEO Jim McCarthy could only say of the group’s outlook: ‘The sales comparables in the second half are softer and our Christmas range is our best ever. However, we have seen highly volatile trading conditions so far in the third quarter. The quarter’s performance therefore depends more than ever upon the last six weeks’ trading towards Christmas.’

• PLND. With the latest Kantar data showing Lidl and Aldi continue to prosper in the UK and while supermarkets and other retailers evolve their offer to suit the new market conditions, it is unclear where Poundland’s proposition sits in the mix. Operating costs have risen across the board, with total overheads up 6.9% to £192m in conjunction with its declining LfL figures, as the group arguably struggles to find a more permanent raison d’etre as a presence on the evolving High Street.

Travel & Hotels:

• Dart Group H1, reports revenues +14% at £1.02bn, underlying PBT +66% at £146.8m and underlying EPS +65% at 79.8p.

• DTG H1: Has ‘exceptional summer season’ with numbers ‘underpinned by continued strong growth in the Leisure Travel business.’

• DTG H1: Load factor up to 94.1% from 91.8% last year with yields up 16%. Distribution business profits almost doubled.

• DTG H1: Group says ‘with winter 2015/16 Leisure Travel bookings continuing to perform in line with expectations and notwithstanding the important post-Christmas booking period that is still to come, the Board is optimistic that current market expectations for the full year will be achieved.’

• DTG H1: Group says ‘the increase in Group operating profit reflects consistently strong summer trading in our Leisure Travel business coupled with our Distribution & Logistics business performing ahead of last year.’ It does caution ‘however, increased losses are to be expected in the second half of the year as our expanding Leisure Travel business invests in additional aircraft, advertising and people in readiness for the summer 2016 season.’

• DTG H1: Says ‘summer 2015 trading has been strong with demand for our package holidays continuing to grow as Jet2holidays took 0.94m (2014: 0.77m) customers on holiday, an increase of 22%, representing 42% (2014: 33%) of overall flown customers.’

• AMEX has said that it expects global meetings and events spend to increase in 2016 for the first time in five years. I says ‘as economies across Europe steadily recover, meeting planners are showing signs of optimism, and the 2016 Forecast offers some very good news. Not only are meeting numbers set to increase, but also overall meeting spend is forecast to grow, reversing the trend from 2015 when declining spend was expected.’

• Sharm disruption set to cost EasyJet a little under £10m.

• TUI is rolling out its Tui Smartband, a wristband that allows customers in resorts to access rooms, pay for items etc.

• London & Partners suggests a boom in budget + also in five star brands will see the number of hotel rooms in London grow 12% by 2018. In the next 3yrs it sees 43 budget properties open in the capital, including eight Travelodge hotels and three Premier Inn sites next year alone.

Other Leisure:

• Dermot Desmond, now the owner of Betdaq, has urged Ladbrokes’ areholders to vote against the Ladbroke/Coral merger deal. He says ‘the real winners in this transaction are the Coral shareholders. Make no mistake, this is a zero premium acquisition of Ladbrokes by Coral. The Coral shareholders receive access to liquidity for their shares and significant relief from a £2.2bn debt burden.’

Finance & Markets:

• Fed continuing to make noises supportive of December rate rise. Minutes say ‘the U.S. financial system appeared to have weathered the turbulence in global financial markets without any sign of systemic stress. Most participants saw the downside risks arising from economic and financial developments abroad as having diminished and judged the risks to the outlook for domestic economic activity and the labour market to be nearly balanced.’

• World markets: UK up yesterday on mining strength but Europe down. US up and Far East higher in Thurs trade

• Oil price relatively stable at around $44.50 per barrel

• UK car production fell 0.7% y-o-y in Oct per SMMT. Year to date numbers still running at 10yr highs

Retail Roundup from Nick Bubb:

Mothercare: The interims today from Mothercare (for the 28 weeks to 10 October) reiterate the pre-close message of Oct 22nd that the UK core business is continuing to benefit from the Digital and full-price trading strategy, but International continues to face significant foreign currency and economic headwinds. UK losses more than halved to £6.1m in H1, on the back of 3.8% LFL sales growth, but International profits fell by 14% to £21.7m, with LFL sales down by 2.3%. However, the net result was that overall underlying PBT more than doubled to a still modest £7m and Mothercare say that “Overall, expectations for the full year outturn are unchanged”.

Poundland:
Ahead of today’s interims from Poundland (for the six months ended 27 September) the market had been softened up for some weak H1 profits and some issues with the 99p Stores acquisition, so the key thing was whether Poundland could revive City sentiment and its ailing share price by talking in detail about the strength of the 99p Stores synergies and the trading outlook etc. Well, the ebullient CEO, Jim McCarthy, gives it a good go, with a couple of punchy headlines: “We’re confident of achieving at least £25m of incremental EBITDA from the acquisition and we are now increasing our UK & Ireland store target from 1,070 to 1,400 stores”. However, underlying PBT fell 26% in H1, on the back of 2.8% dip in LFL sales, and the comment that “we have seen highly volatile trading conditions so far in the third quarter: the quarter’s performance therefore
depends more than ever upon the last six weeks’ trading towards Christmas” will not thrill investors, ahead of the 9am analysts meeting .

Ted Baker: Today’s IMS update from Ted Baker covers the 13 weeks to 14 November and it is, as usual, perfectly upbeat, despite the problems that many UK fashion retailers have had with “the weather” again this autumn. Retail sales for the period increased by 18.1%, on the back of an increase in average Retail square footage of 7.0%, and Wholesale sales increased by 27.0% (25.1% in constant currency), reflecting strong performances from both the UK and North American businesses, to give an overall 20.5% increase in group sales. In summary: “The brand continues to perform very well and in line with the Board’s expectations”.

Planet ONS Watch: We will find out at 9.30am today what High Street life was like on that strange parallel world, the Planet ONS, via the ONS Retail Sales figures for October. In the real world, October was disappointing and on a line through the weak BRC-KPMG Retail Sales survey, our friends at Capital Economics are shooting for a below consensus -1.5% drop in “month-on-month, seasonally adjusted sales volume”. Nick Bubb – nicholas_bubb@hotmail.com

Wednesday Wrap:

This was produced for distribution yesterday 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:

White table cloth restaurants:

• D&D London looks to be coming to the market.

• Valuation estimates range £100m to £130m.

• The FCA is trying its best re one-sided research (in that it may have to be called ‘marketing material’) but it’s not doing anything pro-active in that indies can’t really even get the raw data to take a view.

• Hence there are unlikely to be many (if any) well-informed negative views.

• Add to that the suggestion that portfolio managers may be attracted to the stock (unconsciously) because they eat in the restaurants & there may be a risk that this gets overpriced.

• Because white table cloth restaurants are very hard to value.

• There are issues with roll-out. Franco Manca, Frankie & Benny’s etc. are eminently scalable & one can price them accordingly but the same can’t be said of Coq d’Argent etc.

• Not that that is to say they can’t be scaled, they maybe can. But it might have to be in Seattle & Singapore rather than in Stepney & Shoreditch and that brings with it potential risks as well as rewards.

• Brands such as Savoy, Really Useful Group, upmarket health spas and the like may not be quite at home on the stock market as are ‘normal’ roll-outs such as Costa or JD Wetherspoon or Pitcher & Piano.

• Or even now-unlisted companies such as Prezzo, Eat, Carluccio or Pret.

Airbnb is probably not going away:

• The fact that American Express is to facilitate Airbnb transactions is newsworthy.

• This because Amex will have to stand behind the transaction(s) should anything go wrong and it will have undertaken some DD before making this commitment.

• Hence the deniers may have to take their heads out of the sand at some point.

• Airbnb is likely to be a permanent feature in a travel industry already having to cope with the wave of disintermediation kicked off by the budget airlines.

• Nobody said making money in travel would be easy. The only constant is change.

Terrorism & Leisure Travel:

• News that the Tunisian authorities have foiled another potential terrorist outrage may only serve to focus attention on just how (potentially) dangerous North Africa can be with regard to leisure travel.

• Incidents have happened in the past and markets have recovered but this will not happen overnight.

• Operators will have put in place alternative destinations and, even with absolutely the best will in the world, North Africa will not recover for two or three seasons.

• A more likely scenario is that tourism to the region could have been set back by half a decade – and easily more.

• To tour operators, this is a fleeting (though expensive) transitioning problem. For owners of hotels and restaurants in resort, it is clearly a much bigger issue.

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

• Enterprise Inns’ shares up yesterday on relief at group moving into execution phase of its recovery. Shares only really re-gaining what they had lost on Monday. Shares unchanged in early Weds trading.

• Whitbread shares moving around a bit. Up 3.3% yesterday + now down 1.1% in Weds trading.

• Betting on a Fed rate rise in December now 68% (per IG Index). Betting had been in the 90s a couple of weeks ago.

• It’s easy to forget just how large Walmart is. It turned over $122bn in Q3 alone.

• Nielsen has said that the UK supermarket industry as a whole suffered its largest drop in sales for over a year in the 4wks to 7 November.

• Big ticket spending. SCS says it has made ‘a good start to the current financial year’.

• Sterling stable, oil price down a bit, most commodities soft (exc. El Nino products) and copper weak overnight.

• The Bank of England has said that 80% of its shortfall in inflation (the 2.1% difference between +2.0% and negative 0.1%) is due to price movements that may reverse.

• Meat wholesale prices under severe pressure. Feeder cattle price down 21% over last 12mths & lean hog price down 39%.