Leisure Wrap & Other:

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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:

Restaurant Group director sells shares…

• So when can a director safely sell shares and not run the risk of observers suggesting that other shareholders should maybe follow suit?

• Well perhaps never.

• Or at least not while employed but this will cause problems for directors who want to move house, who get divorced or who otherwise find themselves with too many eggs in one basket.

• And CFOs, as a genre, are likely to be towards the conservative end of the spectrum suggesting that we perhaps should not read too much into yesterday’s announcement.

• However, a glance at the 5yr chart for RTN shares does seem to suggest that the golden period was between mid-2012 and early-2014 during which time the shares were benefiting from both higher earnings and an expanding PER.

• Going forward, it is hard to see RTN’s rating expanding much further suggesting that share price progression could be confined to EPS growth

• In order to ascertain the total return, of course, one would need to add in the dividend, which currently stands at around 2.6%.

• On the downside, any multiple contraction would need to be deducted from EPS growth plus dividend and, at around 20x earnings and will only modest asset-backing, RTN’s shares look relatively fully-valued

Last mover advantage…

• We have been banging on about evolution for some time now.

• Today we ran a couple of stories on the serviced-apartment market.

• It looks as though growth here will outstrip that in the wider hotel market by some margin for the foreseeable future.

• Hence better to be in one market than the other.

• But that, of course, is easier said than done.

• The Shanghai sewage system, for example, may be more efficient than the 200yr old versions we have in London or Manchester – but you can’t simply move from the one to the other

• And this carries across into leisure businesses – particularly those businesses, i.e. most of them, that involve long term commitments either through the purchase of freeholds or long-term lease contracts

• So new 1) entrants in old industries (Franco Manca, GBK, Nandos etc.), 2) disruptive models in old industries (e.g. Domino’s Pizza etc.) or 3) new tech stocks (Deliveroo, Just Eat, Hungry House, Airbnb, Uber etc.) may be better-positioned.

• It just comes down to price.

• You may pay 100x revenues for a 1/10 chance of making 10x your money but that’s effectively a zero-return and anything lower is worse.

Interest rates…

• So Mr Draghi fluffed his lines.

• Well he didn’t, really, but ‘underwhelming’ seems to be the word of the day. Additionally, he arguably did allow markets to get a little ahead of themselves & now attention moves to the Fed and its Dec 16 meeting.

• Rates are likely to rise Stateside.

• Nothing mandates that it has to be a quarter point rise, however. It could be an eighth or even just 10bps.

• The point is, rates are going up rather than down – at least in the US.

• However, yesterday’s moves in the currency markets would seem to suggest that rising rates in the US and (modestly) falling rates across the Eurozone are already more than baked into markets.

Random information, hopefully not all of it useless:

• Draghi under-delivers, markets fall, Euro rises. That wasn’t the plan. Euro has its best day vs US$ in 6yrs. FT All Share apparently broken below its 50dy moving average.

• Sterling weaker vs both US$ and particularly the Euro. Perhaps Wednesday would have been the better day to load up on that holiday currency?

• Oil bounces from $42 per barrel, a level last seen late August this year. OPEC meeting today, level could be tested again despite definitive earlier bounce. OPEC may be putting the squeeze on the frackers, goes the theory, and this may not let up for some time.

• Non-farm payroll numbers in the US this afternoon.

• Yesterday was a horrible day on the wider market but a good day for good leisure companies. Dart Group, Whitbread, Greene King, Merlin all beating the trend. Today, not so much.

• WTB giving a chunk back, seems to be high volatility around the £44-£46 level. Chartists would say the bulls & the bears are engaged in mortal combat. Others would say that’s rubbish but there’s probably a bit of truth in it. We tend to believe one should 1) identify good companies and then 2) buy them when they become attractive (as they may never become cheap).

• JD Sports gave retailers a bit of a boost yesterday by raising guidance & saying ‘relatively strong trading has continued and…the Board expects that headline PBT for the year is likely to exceed current consensus market expectations of £125m by £10m’.

• Giraffe; grows sales increases losses. Just remind me, why does Tesco own this company?

• Evolution continues apace. See comments on the serviced apartment market in this morning’s email. You snooze, you lose.

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

1. Carlsberg consumer insights report says consumers are spending more out of home than ever before at c£145bn

2. JD Wetherspoon reports information breach. Hackers have stolen some customer data including names, DoBs and email addresses

3. Restaurant Group CFO Stephen Critoph has sold 100k shares in the co for a gross £675,000. He retains 189k shares

4. Oak Taverns announces reopening following joint £500k refurb of Church Lane (formerly Blarney Stone) pub

5. Mintel pubs report suggest pubs ‘remain popular’ with around a third of British adults eating in a pub more than once over a month

a. Mintel pubs report: Two thirds of drinkers spend less than £20 per visit. Signs of trading up re eating out

6. Tesco-owned Giraffe reports an increase in sales of 23.5% to £55m in year to end-Feb. Says losses rose from £147k to £4.1m

7. Canadian coffee co Second Cup is reported set to expand in the UK. M+C reports it has secured 5 sites in London.

8. UK services growth hit a 4mth high in Nov per Markit. Says index hit 55.9 from 54.9 in Oct with any number > 50.0 implying growth

9. Acromas Bid Co, which is controlled by Charterhouse Capital, has sold down its holding in Saga from around 45% to c32%.

10. Manchester Airport Group reported 5.7% increase in passenger numbers (to 29.7m) + 10.7% EBITDA increase to £202.5m in H1

11. HotStats reports hotel profits in Cardif should have risen by as much as 116.5% in Oct on back of Rugby World Cup

12. UK serviced apartment sector could double in size over next 2yrs reports Association of Serviced Apartment Providers + Savills

13. Staycity has announced 843 new apartments for 2016 in 5 new sites + Heathrow expansion

14. Ladbrokes announces John Kelly has been appointed as Chairman after Peter Erskine stepped down on 3 December

15. ECB to add to stimulus measures, moves overnight deposit rate from minus 0.2% to minus 0.3% + will extend QE to March 2017.

a. ECB is to buy back €60bn in bonds per month for a further 6mths. News leaves analysts underwhelmed + markets fell