Langton Capital – 2016-01-14 – Daily Wrap: Restaurant Group, Merlin, Sterling, oil & 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:
Restaurant Group re-educates market:
• Restaurant Group shares, though off the bottom, are having a bad day.
• They’re currently down around 14% (spookily similar to the drop seen by GRG earlier in the week) and look set to close, if not at their lows, then at least sharply down on the day as a whole.
• This due to the group saying that ‘it has become apparent from much of the recent data from the retail sector and the wider economy that the trading environment for many consumer facing businesses has been tougher in recent months than it was earlier in 2015.’
• It commented ‘this has caused like-for-like sales growth to trend lower and accordingly we are more cautious than previously on the outlook for 2016.’
• Not surprisingly, numbers are under review and, more importantly, so is the rating.
• Arithmetically as regards forecasts, we have yet to see the dust settle.
• However, a move from yesterday’s 2016 numbers of 17.1x consensus EPS of 37.3p to say 15x a new consensus of 35p would imply a share price drop from yesterday’s 637p to perhaps 525p.
• At the time of writing, the shares are trading at 528p. Ta da!
• NB. RTN is not a bad company. Arithmetically it is tough to compare what happens in a freakily warm run up to Xmas with a standard day in, say, March. Also the group updates in round quarter per cents. Hence a slowdown from 2% to 1.5% could actually be a move from 1.9% to 1.6%. However, the group’s shares are only lightly asset-backed, barriers to entry are limited, there are capacity issues, the marginal new store in 2016 should not be as good as the marginal new store in 2013 and there are profits to be booked.
Is Restaurant Group an isolated case?
• It’s odd that RTN should have been helped by Star Wars and we’ve seen footfall hold up at retail parks yet the group has effectively warned on profits.
• We’re not hearing this elsewhere.
• November was not a good month (post Rugby, tough comps) but December was OK and Chritsmas was acceptable
• The warm weather in December will have been a positive
• We believe that trends outlined by the majors throughout 2015 remain in place.
• We hear from Punch Taverns (AGM) on 18 Jan, Marston’s (AGM) on 26 Jan, the Greene King Tracker comes out on 27 Jan, M&B has it’s AGM on 28 Jan and Enterprise updates on 11 Feb.
Merlin, what’s going on?
• Yes we know there are profits to book, RTN is casting doubt on the consumer’s ability to spend & terrorism a negative.
• But isn’t a weaker Pound good for the company? See below:
• Sterling down against both Euro & US$ yesterday. Is becoming something of a trend. Bank of England due to update on interest rates at 12.00 today. No change to either rates or QE expected.
Oil price weak. Stuck record, etc. but this is important:
• Oil testing $30 again having been markedly below. Goldman targets of $20 looking not altogether unreasonable.
Random information, hopefully not all of it useless:
• The gas price has tweaked down in response to oil. It must have been listening to us.
• Cocoa price now decidedly weak. Where’s El Nino when you need it?
• Asian markets weak, US led them down. Consumer stocks in US particularly poor performers
• Bear markets. Tech analyst calls charts in US ‘very ominous’. Sure, shares are down in the short term but aren’t downward moves (let alone bear markets) actually designed to make us question our assumptions, assume that everything is awful? S&P is at its lowest level since last September
We’re so 21st Century, this morning’s Tweets (diff. font size denotes importance):
1. RTN cautions trading getting tougher. Could have been down near double-digits in last 7wks. See email for detail.
a. RTN re FY numbers ‘are expected to show material growth’ profits in mid-range of estimates
b. RTN trading caution: Says ‘it has become apparent…the trading environment for many consumer facing businesses has been tougher in recent months’
c. RTN: Slowdown caused ‘LfL sales growth to trend lower and accordingly we are more cautious than previously on the outlook for 2016.’
d. RTN says ‘has an excellent portfolio of businesses with strong market positions’ but numbers + rating both under review. Think, Gregg’s?
2. Yum Brands same store sales for its China business, which it intends to spin off by the end of this year, rose 1% in Dec
3. Tesco group LfL sales grew 2.1% over Christmas and 0.4% in the 19 weeks to 9 January on the back of a 3.4% increase in transactions
a. Tesco: CEO Dave Lewis commented on the encouraging results: ‘Our Christmas performance was strong, benefiting from lower prices’
4. McColl’s saw total sales grow 3.3% in 6wks to 10 January on the back of its store expansion programme, while LfLs improved to -0.7%
5. B&M continued its strong growth in the period 27 Sep to 26 Dec, with new store openings pushing total sales up 22.8% to £647.8m
6. EasyHotel has announced that it has conditionally acquired 3-5 Northgate Street in Ipswich, which it intends to convert
7. All Leisure Group has confirmed that it is to make redundancies following a consultation with staff at the end of 2015
8. The Travel Trade Gazette notes a positive but slow start to peaks as customers express concerns over terrorism
9. Year-on-year profit per room at full-service hotels in Paris dropped by 19% this month, according to the latest data from HotStats
10. William Hill updates on Q4, says FY numbers are in line with expectations.
11. Goals Soccer has updated on FY trading saying ‘trading for the year was in-line with revised market expectations’.