Langton Capital – 2015-12-10 – Daily Wrap: More on Whitbread, poor November, slower economy etc. & 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:
Slowing economy. Whitbread, Coffer Peach, various economists etc.:
• A number of voices have suggested that the economy is slowing.
• Macro comments have come from the BCC, NIESR etc. and now we have sectoral comments from Coffer Peach and micro comments from Whitbread (on the back of Marston’s, M&B, Greene King and others).
• It will not be possible for some time (if ever) to disaggregate the impact of the Friday 13th murders in Paris from other, perhaps deeper, trends
• Coffer Peach has suggested that terrorism fears have been responsible for a slowdown (indeed a reversal) in the fortunes of both pubs and restaurants in the Capital.
• Air France (and others) have pointed to lower traffic numbers.
• Stagecoach yesterday pointed to Paris as the major reason for reduced traffic numbers. Shares in Go Ahead fell in sympathy.
• We remain a shade cautious re London in particular and the wider economy in general.
• As Whitbread said, Christmas gets in the way & it will have better visibility in the New Year. On-trade operators’ opinions are also clouded by Christmas.
Whitbread specifically, summary:
• See further detail below.
• New CEO and all the rest but WTB seemed a little ill-at-ease passing its somewhat cautious thoughts re current trading.
• The EPS may not be changing but, as sales have slowed a little, this must be due to margins being a little ahead of analysts’ forecasts in order to compensate
• This is not the stuff of expanding PE ratios and the shares have fallen as a consequence
• Whitbread understandably says that one slow month does not establish a trend and it says that it will have better line of sight in January
• That said, see our comments on the slowing economy above
Whitbread Q3 Update – Conference Call:
• Following its Q3 update this morning, Whitbread hosted a conference call for analysts and our comments are set out below:
• Introduction, Alison Brittain: The new CEO’s aim is to continue to build & strengthen the group’s brands. She buys in to the target milestones, will continue the journey
• The systems & processes within the company will require some investment as a result of the rapid growth thereof
• Hotels: Group’s second Hub opens this week at Tower Hill with a third opening in Shoreditch later this year.
• November is positive – but ‘softer than the rest of the quarter’. Year ‘had been tracking c4% – but in November it was c1.5%’. Says PI was not down as much as the market
• You had been looking for 4% REVPAR increase for the rest of the FY; has this changed? Group downplaying November. Clearly, if 1.5% were to persist, numbers would come under downward pressure.
• Says ‘November is a strange month’. Forward bookings are low at this time of year – people mentally are thinking either pre- or post-Christmas. Hence Jan bookings tend to be strong.
• Group was asked about ‘the last week’ but will not be drawn to make comments on a weekly basis.
• Will your premium over Travelodge narrow? Competitors are pushing prices. Travelodge is not opening much space (so needs margin). This ‘may continue’. It gives Premier Inn opportunities. There ‘are more levers to pull’. Prices are c£15 to c£18 higher at PI vs Travelodge.
• Have you seen a step up in cancellations? No. It was simply a little softer on the leisure side, Friday & Saturday.
• Is Airbnb causing problems? It’s a key issue, says WTB is not complacent. Says ‘broadly speaking, we have not seen an impact.’
• Internationally? Robust in India (from a low base). Middle East ‘rather challenging given the lower oil price’. Germany will open in February.
• Restaurants: Pub restaurant market outside the M25 ‘remains very competitive’.
• Costa: Costa LfLs were up by only 0.5% in November. Group says this has been as a part of a general pre-Christmas slowdown (witness BRC – also today’s Coffer Peach numbers)
• November was ‘somewhat softer’. Group was questioned on this a number of times & said one should not read too much into it.
• Group points out it had a soft August ‘and bounced back rapidly’.
• Prices? Group has not put prices up for some time. Gap has opened up. Starbucks & Nero put prices up pre-Xmas. Alison Brittain says this is ‘a good position to be in’.
• It sounds as though Costa prices may be set to rise. What is the price elasticity? No real comment.
• China. Around 20 fewer stores now set to open. Group also to open a shade fewer in the UK – mostly Esso units. It’s ‘about getting quality sites rather than just sites’.
• Costa Fresco roll-out? It’s both a concept and a test. It has ‘street appeal’. It’s in response to customer trends. Will test customer reaction. It could be retrofitted to a number of stores if consumers respond positively.
• Other: What will be the impact of ‘upgrading systems’? Gradual. Is it needed to fight off the online operators? Just launched a new website. Aim to make frictionless. But surely PI prices are simply a shade on the high side?
• Financials. Are we right to think you will hit your profit targets but via higher margins rather than higher sales? Group skirted the question, said numbers of c£540m to c£545m are intact
• Langton Comment: Whitbread’s conference call was cautionary in tone.
• The group has a new CEO but the feeling that things slowed a little, particularly in November, goes perhaps a little deeper than that.
• Indeed, given the level of questioning, the company may wish that it hadn’t commented on November at all – though that’s not really possible – as there were a number of questions focusing on the ‘exit rate’ i.e. what is now looking like the weakest month of the year to date.
• And that’s understandable – as is the reaction (down c3%) in the group’s shares.
• Investors may decide at this point to hold back & to wait, see how December and January pan out. Whitbread has said that January bookings historically have been very strong suggesting that the company should have a much clearer line of sight on current trading.
• Overall, and when combined with comments made in the Coffer Peach Tracker this morning, one has a feeling that the market may be slowing. This could be temporary but, as the market attempts to discount the future, it is having an impact.
• Clearly WTB’s share price is equivalent to PER multiplied by EPS and, though the latter is not changing at the moment, its composition perhaps is and the PER could come under a little pressure. Perhaps time to stand back & garner further evidence as to ongoing trends.
Random information, hopefully not all of it useless:
• To say that the NLW is a Sword of Damocles is perhaps a little dramatic. It is what it is. The impact will depend on the outlook for pricing next year and the year after, etc. In a ‘normal’ economy, one may be able to pass price increases on to customers and share the impact across the economy via inflation. Just because there is no inflation today does not mean that there won’t be any tomorrow.
• Cattle prices are extremely weak. Feeder cattle prices now down the thick end of 32% on the year. Other commodity prices no change. Very weak with exception of El Nino products & a bit of a bounce in UK milk.
• Sterling down against both the US$ and the Euro. Not so good for inflationary pressures. Just as well that there aren’t any.
• MPC due to announce its latest thoughts on interest rates and QE at 12.00 today. Betting heavily on n/change to either.
We’re so 21st Century, this morning’s Tweets (diff. font size denotes importance):
1. Whitbread Q3 Update: LfL sales up by 4.7% at Premier Inn, up by 1.7% in its restaurants and up by 2.5% at Costa
a. WTB y-t-d (Q3): LfL sales are +4.9% at Premier Inn, +0.6% at the group’s restaurants and +3.7% at Costa
b. WTB Q3. Numbers for Q3 therefore represent a slight slowdown at Premier Inn + some cooling at Costa (against tough comps)
c. WTB Q3: Says ‘in London we grew total sales by 14.8% in the quarter, with a 13.6% increase
d. Whitbread reports ‘Costa grew its worldwide total sales by 15.3% and like for like UK sales by 3.7% for the 39 weeks.’
e. WTB says ‘UK Retail system sales, year to date, grew by 14.9% to £635 million with equity stores growing like for like sales by 3.7%.’
f. WTB incoming CEO Alison Brittain reports ‘in Costa and Premier Inn we have built the nation’s most loved coffee shop and hotel brands’
g. WTB: ‘…has had another good quarter…and we are on track to deliver FY results in line with market expectations.’
2. Coffer Peach Tracker points to 0.2% LfL decline in spend across UK’s major pubs & restaurants in November.
a. Coffer Peach Tracker: LfL sales down 1.5% in London with Tracker saying nervousness in wake of Paris murders to blame
b. Coffer Peach Tracker: Says in London was a case of ‘chain restaurants feeling the biggest impact’. Restaurant sales were down 2.6% in London
c. Coffer Peach Tracker: Has London pubs down 0.8% in Nov on back of Paris attacks.
d. Coffer Peach Tracker: Says ‘London will be hoping that public confidence returns for the Christmas and New Year festive season’
3. National Living Wage could be ‘Sword of Damocles’ warns Christie & Co. It says wages will push cost of labour up materially.
4. Nando’s is aiming to double its current estate of 348 sites and plans to open 25 next year while refurbishing an additional 30+.
5. Marston’s has signed a three-year contract to become the sole distributor of German lager Warsteiner in the UK.
6. TUI FY numbers: A ‘particularly strong’ performance from its Northern Region, Hotels & Resorts and Cruises division’
a. TUI FY numbers: Current trading is in line with management expectations, with flights to Sharm el-Sheikh remaining cancelled.
7. More Uber drivers in California can participate in a class action to enforce pay + expenses a California judge has ruled
8. Accor is buying a portfolio of luxury hotels including London’s Savoy + New York’s Plaza, in a cash + share deal worth $2.9bn
9. BCC cuts estimate of UK economic growth saying a weaker-than-expected trade and manufacturing performance was to blame.