Langton Capital – 2015-12-01 – Daily Wrap: Merlin, weather, Black Friday, commodity prices & 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:
Merlin updates on (most of) full year:
• Merlin shares up a little on Q3, Q4 update.
• Curate’s egg but Alton Towers, though still down y-o-y, is less down than it was in the summer & autumn.
• Lego had a good Halloween.
• Feels like a company with legs (consider also WTB, SSP).
• Current re-based trading range of 365p to 415p looks more likely, in our opinion, to break on the upside than the down.
• Shares not cheap, but will they ever be?
• Could be that, as with WTB, it is right to buy at a ‘fair’ price because, if you wait for the shares to become cheap, it may be unlikely that you will ever own them
The weather & the on-trade:
• WDR has pointed out that nine of the first ten months in 2015 were colder than average.
• We pointed out something similar when we suggested that Premier Foods, which sells a number of ‘cold-weather’ products such as custard, gravy and the like, would maybe report strong numbers for the quarter to end-September.
• August, fortunately for pub beer gardens, was the exceptional month in 2015.
• Furthermore, wet weather in the summer may be a little more off-putting than a temperature that is slightly below average
• And, whilst it’s wet now, the summer was OK and the rain now will be falling on beer gardens that would have been empty in any case
• From here on in snow would be a problem. A chilly and wet December with snow in the last two weeks would be unhelpful.
• But, at this stage, nobody has any real idea as to how the weather will pan out and it’s all to play for
Black Friday still hoovering up the cash:
• Some operators may have wound this back a little.
• But Black Friday still saw a spike in sales, even if a chunk of this was online.
• John Lewis said that Black Friday itself was up around 12% – though much of this was down to a surge in online sales.
• However, discounts can bring forward sales & it is hard not to accept that there is a degree of cannibalisation going on.
• Greene King has recruited John Forrest, former chief operating officer of Premier Inn, as COO of the Greene King’s retail division. Forrest starts in January and will report directly to Greene King CEO Rooney Anand.
Random information, hopefully not all of it useless:
• Sterling down a little, oil price up a little. Just saying. ASDA move to <100p petrol was for Black Friday only.
• Who’d be a gold bug, hey? Precious metal prices flat on their backs. What’s that saying, if you can’t find the bigger fool to pass your non-productive ‘assets’ on to, then you may be the bigger fool. Gold now down 10% on the year, palladium down 32%, silver down 13% etc.
• Soybean prices down 28% on a year ago, even ‘El Nino’ affected prices, OJ, sugar, cocoa, looking a little less healthy.
• Whitbread shares very strong yesterday and today, recovering a little from recent recent lows. Can’t keep a good share down, etc. Co has international brands. MERL also looked like a company that would recover from bad news more rapidly than most.
• Cranswick. Great company and all that but shares perhaps a little stretched. Fair enough, you should run your winners (see Greggs, WTB, SSP etc.) but nonetheless, we would be somewhat inclined to book some profits…
• Evolution continues to be a feature, Yotel is pushing its Pod product.
• New openings. Hotels again with Yotel saying that it would like to move from its current eight units to perhaps 50 in 5yrs. Ambitious, no? Such an opening profile – or at least the ambition thereto – is now relatively common across the casual dining space.
• UK mortgage approval numbers suggest that the freeze may be over. Approvals peaked >100k in the boom, hit c45k in the crunch & now running in high 60s.
• C-store chain McColl’s pointing out that LfL sales are still negative. Could be that the business model here is under threat. Models generally are, of course, but here we have a number of well-financed traditional C-stores putting on capacity alongside smaller shops built by SBRY, TSCO etc. and an enhanced offer from discounters such as Poundland, Home Bargains etc.
• Stock selection still matters. They may both be asset-backed pub operators but last week the shares of MAB (down c8%) and MARS (up c8%) moved in radically different directions.
We’re so 21st Century, this morning’s Tweets (diff. font size denotes importance):
1. WDR analysis of Met Office data shows UK temperature was at least 1°C colder than it was in 2014 in 9 out of 10 months this year.
2. Original Bowling Co has invested £500,000 in the refurbishment of its Hollywood Bowl Centre in Cardigan Fields Leisure Park, Leeds
3. Cubitt House secures investment from private investors to fund expansion, advised by Sapient Corporate Finance.
4. ALMR suggests a tax on sugary drinks might not be the most effective way of combatting obesity and could hurt pubs and bars
a. Chris Snowdon, of the IEA, has also reiterated his view that a new tax on sugary drinks would hit the poorest the hardest.
5. Ask + Zizzi owner, Azzurri Group, hails 2015 as ‘transformational’ after reporting a 16.5% increase in EBITDA to £31.8m.
6. An international bidding war is expected for the government’s 49% stake in the UK’s air traffic control network, National Air Traffic Services
7. Pod hotel company Yotel has said that it has aggressive expansion plans + aims to have 50 new hotels in 5yrs
8. Accor has announced purchase of 3 hotel portfolios across Europe (29 hotels, 3,677 rooms), for a total of €284m.
9. Merlin updates pre-close, says trading since September ‘in line with expectations’. LfL growth at Legoland ‘remains strong’.
a. MERL pre-close: FY results are ‘expected to be in line with previous guidance’. Lego been ‘enjoying an excellent Halloween period.’
b. MERL ‘Midway Attractions LfL revenue growth has remained at lower levels’. Says challenging in London + Hong Kong’.
c. MERL. ‘Trading at Alton Towers has remained significantly < prior year.’ Adds ‘as expected, y-o-y declines have narrowed in recent weeks’.
d. MERL: ‘New attractions and accommodation opened across the Group this year, and in 2014, have continued to perform well.’
10. UK mortgage approvals rose to 69,600 in Oct. Though a shade below expectations of 69,900, the number was up on last month