Langton Capital – 2015-12-18 – Daily Wrap: General market trends, hotel occupancy & 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:
Interpreting trends in the pubs & restaurants industry:
• BDO’s report (see earlier email) paints a pretty comprehensive picture as to the state of the market for pubs, bars & restaurants in the UK.
• Not surprisingly, it takes a top-down approach.
• A better economy (witness GDP) has led to a period of sustained growth in real incomes (they turned positive in H2 2014 after about six years of declines) and this has boosted consumer confidence.
• BDO then drills down to our sector saying ‘whilst the general economic picture may be rather uncertain, the restaurant and bars sector continues to defy the rest of the economy with steady and consistent growth.’
• This has been both at the absolute level (pretty obviously given the level of new openings) and LfL (at least for the most part).
• However, that’s the past & it may be the future that we’re more interested in.
• And here, whilst we agree that the underlying fundamentals are broadly positive, new entrants may continue to be something of a problem
• Innovation remains key with BDO saying ‘as some chains diversify to cater to changing consumer habits, other pub chains are having to revise their models and become more innovative’.
• Re the NLW, BDO says ‘the next six months will see a period of focus on operating margins as wage costs increase’. It says more positively ‘the flipside of this is that consumers have more disposal income and this coupled with the National Living Wage putting more money in consumers’ pockets mean the sector should continue to outperform the wider UK economy.’
• Re the future, BDO says we could see more transaction activity in 2016 but says ‘pricing will not be excessive.’
• BDO names a number of chains that may change hands and we would suggest that it will be interesting to see whether any buyers – other than rival PE houses – emerge for these assets.
• Interesting also, BDO speculates on whether one or two of the more fashionable grab-and-go chains have legs. It says ‘their respective estate sizes are still relatively small and unproven beyond their London/City heartlands’. This puts a question-mark over roll out potential.
• Overall, we’re not sure of the specifics but there’s one thing we are sure of, that’s that 2016 is going to be another year in which we are likely to have to work for our living.
Weather & the pubs:
• Langton has been standing outside pubs this week, would you believe, and it hasn’t been alone.
• The balmy weather (as well as that little thing called Christmas) has brought people out in droves and standing outside, in c15 degrees, has been a realistic option.
• Overall, despite the general retailers telling us that the weather hasn’t done much for the sales of overcoats and pullovers, this should have been helpful for the on-trade.
Xmas on a Friday:
• Christmas is a week today and, whilst the fact that it falls on a Friday means that what would have been a big day in any case is taken out, it does mean that there is a frantic build up to the day itself.
• Mad Friday (today) is also likely to be big but, with many people working Monday, Tuesday, Wednesday and even Thursday (at least the morning), there should be plenty of chances to capitalise on the public’s
Random information, hopefully not all of it useless:
• Carnival figures later today.
• Paris hotel occupancy pretty poor in the days following the Friday 13th attacks. London was down in sympathy and, over time, it’s going to be hard to disaggregate terrorism-related worries from any potential wider slowdown.
• Well what do you know, Ocado is opening a physical store. Amazon has recently opened a bookshop. Before long, pubs will be coming together into chains and opening breweries.
• Retail Week has suggested that Black Friday has become a big deal. It says ‘Christmas is now a season with two peaks and an inevitable valley in between – a valley that will be as tricky to navigate as the spike in activity either side’.
• Markets more robust than initially imagined this morning. Two day rally looks broadly secure. Year still a bit of a pig in terms of overall performance.
• Oil cheap, commodities cheap, little change.
• Sterling down vs US$. Impacts price of oil & other commodities.
We’re so 21st Century, this morning’s Tweets (diff. font size denotes importance):
1. BDO Restaurant + Bars’ Report: Says ‘overall consumer confidence remains reserved.’
a. BDO Restaurant + Bars’ Report: Industry remains in rude health, however, with consistent growth, increasing competition, and rising wages.
b. BDO Restaurant + Bars’ Report says ‘Over the next six months, the prospects for the sector look set to improve – despite the macroeconomic headwinds.’
2. Anheuser Busch wishes to wrap up disposal of Grolsch + Peroni in 3mths or less reports Reuters
a. AB InBev has reported that UK consumers are turning to alcohol-free beer in increasing numbers. Says 31% have tried the product
3. Brewdog is opening its first bar in Rome and third in Italy, meaning the brewer has now opened 43 sites since its first bar in Aberdeen in 2010
4. UK retail sales rose by more than expected in November, up 1.7% month on month and 5% year on year.
5. All Leisure trading update: ‘Trading conditions have been challenging throughout the year, both for the Tours and Cruise divisions.’
a. All Leisure update: However, group had guided down at H1, saying it expected a small loss but it says now it should break even
b. All Leisure update: FY revenues should be c£127.3m. Says ‘underlying Cruise division revenues fell by £2.2m’ due to maintenance
c. All Leisure update: Re outlook, says ‘trading conditions are expected to remain very challenging’. Points to Mid-East unrest & terrorism
6. Las Vegas has topped the list of US destinations in terms of forward hotel bookings for 2016 reports Hotel News Now
7. More than 4m passengers will be heading overseas over the festive period with 18, 23 and 30 December set to be the peak travel dates
8. Occupancy levels in Paris hotels down after terrorist attacks, down 22.7%, 26.1%, 29.8%, 32.6%, 31.2%, 33.6% and 39.2% in the days after
9. The CMA has cleared the merger of Betfair and Paddy Power, scheduled to go ahead in the first quarter of 2016.
10. Sportech has announced Mickey Kalifa is to be appointed CFO. Mickey has served as Corporate Development Director for the last 6yrs