Langton Capital – 2015-12-18 – Peroni, Grolsch, Las Vegas, All Leisure & other:
A Day in the Life:
Follow us on Twitter at either @langtoncapital or @brumbymark.
Find previous emails at http://www.langtoncapital.co.uk/daily-notes/
Capex has shot up this year chez Langton as we’ve ordered a replacement corporate fridge.
This because the rubber seal had fallen off the door of the old one ensuring that the white box managed to heat up its contents rather than cool them down and, whilst this was no doubt good news for all those botulism bacteria knocking around in the atmosphere and which no doubt had their eyes on our sliced meat and Scotch eggs, it wasn’t so good for our office’s two legged occupants.
And the thing didn’t even cool the room down in the summer because, in the same way that achieving perpetual motion is somewhat tricky, the energy going into cooling stuff down means that the back of the fridge gets just as hot as the inside gets cold. Check it out on geekstats.
Anyway, the new one seems to work. True, it came to our office & back to the depot a couple of times before we actually took receipt and the packaging is still taking up about a quarter of our floor-space and we had to pay to have the old one removed but, at the end of the day, our milk is no longer likely to kill us. On to the news:
Pub, Restaurant & Drinks Producer News:
• Anheuser Busch wishes to wrap up disposal of Grolsch + Peroni in 3mths or less reports Reuters. It quotes sources as saying ‘AB InBev was keen to avoid getting bogged down in any regulatory scrutiny over a European portfolio that already includes its premium brands Corona and Stella Artois.’ It suggests that indicative offers for the two brands will need to be in by mid-January, ensuring that some operators’ Christmas breaks will be spent behind a computer screen. Reuters suggests ‘the deadline favours private equity firms over trade buyers and shows AB InBev is valuing time over money, sources said. Because financial buyers don’t have to assess a deal’s impact on their current operations, they can pull the trigger more quickly, but won’t bid as much since they lack synergies.’
• AB InBev has reported that UK consumers are turning to alcohol-free beer in increasing numbers. Says 31% have tried the product. AB says that 18% of Londoners drink it every time they go out and that 21% of millennials are likely to choose it as their drink of choice in January. It says ‘across the UK, almost a fifth of consumers (19%) are unable to taste the difference between alcohol and alcohol-free beer, which may go some way to explaining why, among those looking to moderate their alcohol intake in January, 34% will be looking to consume alcohol-free beer. This is an increase of 16% from 2014.’ AB says ‘it great to see the growing popularity of alcohol-free beer among the UK public – especially millennials. Offering consumers choice is an important part of our commitment to responsible drinking and we are proud to brew Beck’s Blue, the market leading
• BDO Restaurant + Bars’ Report: The latest BDO report notes that ‘whilst employment and wages are rising and prices falling, the picture for overall consumer confidence remains reserved.’ Meanwhile the Quoted Companies Alliance (QCA)/BDO Pulse survey shows small business confidence reaching a two-year low of 61.8 in September, down from 69.3 in January.
• BDO Restaurant + Bars’ Report: The restaurant and bar industry remains in rude health, however, with consistent growth, increasing competition, and rising wages. The Peach BrandTrack consumer survey also shows that 42% of the UK population are now eating out weekly, rising to 58% in the 25-34 year old age bracket.
• BDO Restaurant + Bars’ Report: The BDO report concludes: ‘Over the next six months, the prospects for the sector look set to improve – despite the macroeconomic headwinds. Whilst overall consumer confidence may be muted, the desire for eating out looks set to continue with consumers preferring to spend their disposable income on leisure and hospitality.’ It will not all be plain sailing in the coming year, though, with tenanted pubcos anxiously awaiting the final details of the Market Rent Option, and with the wider industry processing the impact of the National Living wage.
• BDO Restaurant + Bars’ Report: Restaurant and pub groups reported a like-for-like rise in sales in October of 2.5% according to the Coffer Peach Business Tracker, whilst total sales (taking into account new site openings) were up by 6.1% on the same month a year earlier.
• BDO Restaurant + Bars’ Report: The Visa Europe UK Expenditure Index shows spending on hotels, restaurants and bars rose by +10.0% in October compared to the same month in the previous year, outperformed all other categories.
• BDO Restaurant + Bars’ Report: Figures compiled by the British Chambers of Commerce and DHL reveal that export sales and order balances have fallen to their lowest levels for over six years. The corporate earnings outlook continues to look strained, with confidence over expectations of turnover and profitability declining. A total of 13% now expect a fall in turnover (Q2: 7%), whilst 16% expect a fall in profits (Q2: 11%).
• E&J Gallo Winery has agreed to purchase The Ranch Winery, based in St Helena, California.
• Eight-strong healthy food concept Pure is looking to expand in London and has caught the intention of private equity and investment funds. The group plans to open three sites over the next year and is looking at Holborn, Mayfair and Victoria.
• 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. BrewDog co-founder James Watt said: ‘BrewDog Rome is a massive landmark launch for us – Italy’s known for its masters of art and architecture, and this bar will provide a showcase for masters in our own artistic arena – brewing.’
• UK retail sales rose by more than expected in November, up 1.7% month on month and 5% year on year.
Travel & Hotels:
• All Leisure trading update: ‘Trading conditions have been challenging throughout the year, both for the Tours and Cruise divisions.’
• All Leisure update: However, group had guided down at H1, saying it expected a small loss but it says now it should break even. It says ‘subsequent to this statement [at its H1 numbers], trading in the final quarter of the year improved slightly, driven by better late bookings for September/October departures. Subject to audit, the Group now expects to have delivered broadly neutral profit before tax for the year.’
• All Leisure update: FY revenues should be c£127.3m. Says ‘underlying Cruise division revenues fell by £2.2m’ due to maintenance. Group says ‘our “Travelsphere” and “Just You” brands continued to offer Escorted Tours to destinations across the world. Total passenger numbers for Tours were 36.2k (2014: 39.8k), with average revenue per passenger ahead 2%. Our “Just You” brand continued to grow passenger numbers, which was very pleasing.’
• All Leisure update: Re outlook, says ‘trading conditions are expected to remain very challenging, especially in view of the escalating conflict in the Middle East and recent acts of terrorism, and the effect these events may have on consumers’ propensity to travel.’
• Las Vegas has topped the list of US destinations in terms of forward hotel bookings for 2016 reports Hotel News Now. It says the destination is followed by Orlando, Miami and New York City. HNN says ‘within the U.S., Las Vegas and other big cities like New York City, Miami and San Francisco remain top favorites; however, we’re also seeing the resurgence of interest in traditional Florida destinations, such as Sarasota and Cocoa Beach – both of which have favorable average daily rates under $125 per night on priceline.com.’
• More than four million passengers will be heading overseas over the festive period with 18, 23 and 30 December set to be the peak travel dates. Some 900,000 will be departing from Gatwick, 500,000 from Stansted, 255,000 from Luton, in addition around 400,000 will leave from Manchester and 205,000 from Birmingham.
• Occupancy levels in Paris hotels suffered in the wake of its terrorist attacks, down 22.7%, 26.1%, 29.8%, 32.6%, 31.2%, 33.6% and 39.2% in the days after the event. Levels recovered in the final days of November and early December thanks in part to the United Nations Climate Change conference.
• The CMA has cleared the merger of Betfair and Paddy Power, scheduled to go ahead in the first quarter of 2016.
• Sportech has announced Mickey Kalifa is to be appointed CFO. Mickey has served as Corporate Development Director for the last 6yrs. Chairman Roger Withers reports ‘I am delighted to welcome Mickey to the Board. He is a highly valued member of our executive team, and has played a significant role in the development of our business interests in the US and Canada.’
Finance & Markets:
• IMF chief Christine Lagarde will stand trial in France for alleged negligence over a €404m compensation payment to Bernard Tapie for the sale of a firm. Ms Lagarde’s lawyer described the court’s decision as ‘incomprehensible’.
• World markets: UK up yesterday on reduced interest rate fears. Europe also higher but US down later. Asia up in Fri trading
• Oil prices still bumping along the bottom at around $37.10 per barrel
Retail Roundup from Nick Bubb:
John Lewis Sales Watch: Online sales continued to forge ahead last week, up by 15% up, but Store LFL sales were c3% down again and it is notable that the big Oxford Street flagship store was again very poor, nearly 11% down (propping up the league table yet), whilst another recent laggard, Kingston, was 8% down…Nevertheless, despite the impact of the poor weather and Black Friday “returns” on Fashion sales, gross sales in w/e Dec 12th were up by 3.0% (up c1.5% LFL, ex the impact of the new Birmingham store etc). Over the last 19 weeks, John Lewis is cumulatively now 2.7% up (just over 1% up LFL), with Oxford Street running 8.2% down and Online 14.1% up.
Trade Press (1):
Trade Press (2): There is no Drapers magazine today (although there has been plenty on the website this week about pre-Christmas discounting and the Bonmarche profit warning), but we can bring you more from last week’s “Top 100 2015”: the definitive list of the “movers and shakers” in Fashion retailing. Having given the Top 3 before, we can now reveal that Andy Street of John Lewis and Philip Green of Arcadia held on to 4th and 5th places respectively. Nigel Oddy of House of Fraser was a new entry at 20th (well ahead of his counterpart at Debenhams, Mike Sharp, who slipped to 38th). Rather humiliatingly, Marc Bolland of M&S slipped from 29th to 32nd…But it was good to see Mahmud Kamani and Carol Kane of Boohoo move up from 34th last year to 27th position this year.
News Flow Next Week: There is no company news scheduled next week, as retailers hold their breath about the scale of the much-anticipated “late rush” of Christmas spending, ahead of Christmas Eve on Thursday, with the weather remaining unhelpfully mild…But, as the end of the month is looming large, we get the CBI Distributive Trades survey for “December” on Monday morning and the GFK Consumer Confidence survey for December first thing on Tuesday.
Sale Watch: When we went to Kingston on Tuesday morning coats and jumpers were widely being discounted, because of the amazingly mild weather…but the prize for “Most Stupid Sale” went to Jack Wills, which was offering “at least 25% off everything” up until midnight on Saturday! Nick Bubb – firstname.lastname@example.org
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:
Interest rates in perspective:
• US rates have gone up but this needs to be put into perspective.
• They have ‘doubled’ – but only to 0.5%.
• Best betting is on four rises in full year 2016 – but that will only take the rate to 1.5%.
• It could be three years or more before rates exceed 3%.
• The Fed (and the Bank of England) has said that rates should not be expected to rise to the level seen in previous rounds of tightening.
• Rates last went up in the US in 2006.
• The UK is thought to be perhaps 6mths behind the US and the ECB may only raise rates a further 6mths to 12mths behind the Bank of England.
• Most floating rates paid by companies, individuals etc. are priced as LIBOR plus and, if the ‘plus’ bit drops a little, the actual rate paid on the street will not increase by as much as the base rate itself does.
• In addition to floating rate debt, many companies have fixed rate commitments. These will clearly not rise when rates go up – though the capital value of the bonds may fall if the instrument is traded.
Interest rates’ silver lining:
• As rates rise, discount and annuity rates should also increase.
• As this is used as the denominator when determining pension liabilities, deficits here across the corporate landscape should be reduced.
• This could lead to pension holidays and, as a result, the earnings of some companies could be increased.
• Higher retained earnings could be used to pay increased dividends.
Random information, hopefully not all of it useless:
• No real surprise that Nando’s has topped the poll of restaurants in terms of twitter followers.
• Market up sharply as US rate rise confirmed.
• Sterling down noticeable vs both US$ (understandable) and Euro (less so).
• Oil down yesterday. Metals all weak. El Nino impacted soft commodities (sugar, cocoa, orange juice) showing some signs of price weakness.