Langton Capital – 2016-01-12 – Daily Wrap: Whitbread, Morrison’s, Gregg’s & 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:
• Shares have given back a lot of ground and are attractive.
• That said, the trickle of potentially negative news continues.
• Staycations may benefit the group but today Air France said that terrorism cost it €50m in lost sales in Nov and €70m in Dec
• Yesterday we saw Travelodge unveil new expansion plans
• Today a rival broker suggests that Airbnb is widening the market rather than stealing share. It may be doing both.
• Today we also have Gregg’s saying that it’s going to reinforce its efforts to grow in the breakfast & coffee markets
• Overall, we believe that Whitbread’s shares offer good value. The group trades on 19x this year’s numbers but, as it is a Feb year end, this will change shortly.
• For FY17, the group’s shares trade at 17x EPS. That seems a little low for an asset-backed (at least in the UK) group with international options.
• Timing is everything, of course.
Morrison’s and Gregg’s, divergent fortunes:
• Two northern retailers reported today.
• Morrison’s shares have halved over the last couple of days – and at the time of writing they are up by 10% on a decent (at least stable) Xmas update.
• Gregg’s shares, on the other hand, have hey have trebled over the last two years but now the company is lapping tougher comps.
• Q4 has slowed (+2.3% LfL vs +4.7% for the full year – and +4.9% to end-Q3).
• And the group has used that dreaded word ‘broadly’.
• Greggs said ‘since our last update, trading has been broadly consistent with our plans and we anticipate that we will report full year results in line with our previous expectations.’
• There may have been exceptions but the word ‘broadly’ is rarely if ever used in a positive context
• Pie shop Gregg’s, which has performed extremely strongly but which operates in a market with few barriers to entry, trades on a FY15 multiple of 24x falling to 22x for the year to end-December 2016.
Retailing in general, it’s a crazy market:
• There’s a lot going on. Christmas, yes, warm weather, yes – but still, there’s a lot going on.
• You’ve got bid approaches – Home Retail.
• And you’ve got underperformers & management change; Sports Direct, Game Digital, Marks & Spencer (to some extent, at least).
• And you’ve got haloes slipping (NXT, Gregg’s) and bootstraps being pulled up (Morrison’s, Debenhams, Majestic) so what next?
• Perhaps an actual bid or a profit warning or an accounting scandal?
• Or maybe things will settle down. See Nick Bubb & prior Langton comment.
Retailing, the lessons from recent updates:
• Black Friday (again) pulled sales forward.
• Xmas was average to poor for many retailers & the warm weather adversely impacted clothing retailers.
• The week to 2 Jan, on the other hand, saw a ‘sales bonanza’.
• Online sales are up between 20% and 100% (admittedly across a decidedly non-scientifically chosen group of retailers)
• KPMG says ‘with 190% of average rainfall falling in December, many consumers chose to login rather than walk in over the festive period’.
The cash in consumers’ pockets:
• We’ve commented previously on petrol price drops, rising real wages, utility price reductions etc.
• ASDA is putting £500m back into the market.
• And Morrison’s today says that it has cut prices (excluding fuel) by 3.2% this year and 7% over the past two years
• This is likely to continue and, with prices still perhaps 20% above those charged by the hard-discounters, the major grocers may have to halve the difference in order to stabilise their sales base
• This will clearly be positive for the consumer & for consumer-facing stocks such as the pubs, restaurants etc.
Oil testing new lows:
• Trading at little over $31.10.
• Actually represents something of a bounce from overnight lows of c$30.60.
• See earlier emails for implications re costs, inflation etc.
Sterling sliding on international markets:
• The Pound had another bad day yesterday. See Monday comments for impact on tour operators (and the pound in returning holidaymakers’ pockets).
Random information, hopefully not all of it useless:
• Langton’s LRI shows leisure outperforming the wider market. Admittedly this is at least partly due to the miners having fallen sharply – again. That said, WTB was a loser last week (up sharply in the first two days of this week) and, if it were removed from the LRI, the performance of the remaining stocks would have been materially better than that of the market as a whole.
• Utility prices weak. Even the El Nino stocks giving a bit back. Cocoa is one of the best-performing soft commodity products but it is now only up a short 2% over the last 12mths.
• Milk price still very low. Chart is slightly misleading as it shows farm gate prices in Northern Ireland are picking up from what look like the anomalously low prices hit in the summer. Prices elsewhere in the UK could only be have said to have stabilised – and that at prices some 30% below where they were a year ago.
• Dilbert’s bosses advice for the day below. Note for the easily-led, this is not legally correct. He says ‘it’s not a crime if you pretend it was an accident’.
We’re so 21st Century, this morning’s Tweets (diff. font size denotes importance):
1. Greggs updates on Q4, says it has had ‘a good finish to an excellent year’ with total 52wk sales +5.2%, LfLs +4.7%
a. Greggs Q4. Says LfL sales in the quarter +2.3%, a slowdown reflecting stronger comps towards end-2014.
b. Greggs Q4. Says full year results anticipated to be in line with previous expectations.
c. Greggs: Q4 LfLs ‘slowed to 2.3% in Q4 as we came up against stronger comparatives + impact of weaker footfall in some shopping locations.’
d. Greggs says ‘sales over the Christmas period were in line with the overall trend for Q4’. That is slower than rest of year.
e. Greggs says breakfast-on-the-go is ‘our fastest growing part of the day with sales of coffee continuing to grow strongly.
f. Greggs outlook. Says ‘since our last update, trading has been broadly consistent with our plans’. Says numbers in line
2. Just Eat updates on FY order intake, says ‘the momentum reported during the year has continued’.
3. Morrisons sales improved in the nine weeks to 3 January (ex-fuel: +0.2%, inc. fuel: -0.6%), with LfL number transactions up 1.3%.
a. MRW. Looking forward, Morrisons still expects H2 underlying profit before tax to be higher than H1
b. MRW. CEO Dave Potts commented: ‘We are pleased with our improved trading performance over the Christmas period’.
4. The D&D London Restaurant group has posted a 4.2% increase in like for like sales over December despite tough comps
5. Japanese brewer Asahi is assembling a £2.4bn takeover bid for AB InBev brands Peroni and Grolsch
6. London Underground staff are ready to stage three 24-hour strikes on 26 January, 15 February and 17 February over pay
7. Saga updates on period to 11 Jan, says ‘Group has delivered on the strategic objectives outlined for the year’
8. Travelodge has announced plans to invest £140m in opening 19 new hotels in 2016, which would create as many as 450 new jobs
9. Skyscanner raises further $192m from new investors, in a move that sees Edinburgh-based online travel site valued at perhaps $1.6bn
10. Air France has said the November terrorist attacks in Paris led to a €70 million drop in revenues in December
11. Cineworld updates on FY to end-Dec, says total revenues +12.3%, UK & Ireland +11.6%. Profits ‘in line with expectations’
12. Gym Group updates on year to end-Dec, says numbers expected to be in line with consensus market expectations