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:

RTN, GRG. Highly rated stocks:

• The EMH (Efficient Market Hypothesis) would have it that prices are perfect at all times.

• That’s a gross oversimplification, of course, but the EMH is inconsistent with bubbles – yet they are all around us – and with anything becoming over-bought or, indeed, over-sold

• Yet we can see that good stocks on occasion do become overbought.

• Gregg’s and Restaurant Group have perhaps illustrated that this week.

• But, whilst bubbles can be spotted while they are inflating (think perhaps London property), timing is everything and, as the chart below shows, shorting either Gregg’s at 600p, 700p, 800p, 900p or whatever, would have been financially sub-optimal to say the very least.

Chart included in bespoke 10am email. 

• Short the stock at 1300p and you’re a genius but who did that? Answer, pretty much nobody.

• And Restaurant Group has been similar.

Chart included in bespoke 10am email.

• Interestingly directors there sold material amounts of stock in mid-2015:

Chart included in bespoke 10am email.

• And perhaps more interesting still, they were selling shares at near £7 only a few weeks ago.

Chart included in bespoke 10am email.

DOM, CAKE. Highly rated stocks continued:

• Domino’s Pizza has given back a little ground since

Chart included in bespoke 10am email.

• However, Domino’s shares still trade on 27x 2016 earnings.

• Patisserie Valarie has surrendered c20% of its value in the last two weeks without so much as a peep. The shares still trade on around 26x this year’s earnings.

Chart included in bespoke 10am email.

MERL. Highly rated stocks, growth prospects & barriers to entry:

• Merlin, a stock we very much like, trades on around 21x this year’s earnings.

• There are more barriers to entry when building a multi-million pound, Lego-contracted theme park in China than there are in delivering a pizza.

• And the growth potential is, arguably, huge.

• Domino’s has been driving revenue by splitting stores for some time. Viewed in another light, this could be called cannibalisation

Highly rated stocks:

• Re-organise this phrase – King the no clothes got on.

• Consider rating, growth potential and barriers to entry.

• Sure, consider momentum but, when that is pulled away, what have you got?

• Contrast MERL (or ARM for that matter) with a pizza delivery co, a generic restaurant company or a pie shop.

Leisure stocks record worst day in a long while:

• Leisure and travel stocks, which make up perhaps 2% to 3% of the index, hogged the bottom spots across both the FTSE100 and FTSE250 indices yesterday.

• Top 10 FTSE100 losers included Intercontinental Hotels, Carnival, Merlin, TUI and IAG.

• Losers in the FTSE250 included Restaurant Group, Thomas Cook, Betfair, Just Eat and WH Smith (which sometimes moves as a travel stock).

• Terrorism in Indonesia, rather surprisingly, seems to have spooked the market to a greater extent perhaps than did that in Paris, Egypt etc.

Random information, hopefully not all of it useless:

• Sterling still pretty weak. Has implications for holiday costs, commodity prices etc. Inflation, however, is not top of the Bank of England’s worry list.

• Oil price horrible. Trading <$30 at the moment. See earlier emails for comments re spending power of consumer, pump prices etc.

Chart included in bespoke 10am email.

• Gas prices coming back into line with those of oil. That is, they’re lower. Now down by 28% over the last year.

Chart included in bespoke 10am email.

• World equities head lower post Wall Street bounce. Below is yesterday’s moves in Europe & US and Friday moves in the Far East and Australasia.

Chart included in bespoke 10am email.

• Those with a sweet tooth are on to something of a loser. Sugar is one of the few commodities whose price has been on the up over the last year. Price now up by 9% on a 12mth basis.

Chart included in bespoke 10am email.

We’re so 21st Century, this morning’s Tweets (diff. font size denotes importance):

1. Restaurant Group. Shares closed near to our suggested 525p. If it tracks Gregg’s, it may bounce a little – but there’s a reality check going on

a. Restaurant Group: Impacted by floods etc. but so was everyone else. We hear more from other pub groups later in the month. See e/m.

2. Southern Comfort Brown-Forman is selling the brand to rival, Louisiana-based Sazerac, alongside its Tuaca premium liqueur brand

3. Inamo co-founder Noel Hunwick expects to see a rise in high-tech dining out over the next few years

4. Security specialist Anvil highlights turbulent oil prices + threat of terrorism + cyber attacks as biggest threats to UK travellers

5. STR says there were 1,132 hotels comprising 161,940 rooms Under Contract in Europe as of December — a 16.2% increase y-o-y

a. STR re US hotels: Some 3,881 projects coming to 469,139 rooms Under Contract, up 13.6% on December 2014

6. Bank of England yesterday held rates in the UK at 0.5% (vote 8-1) and left QE unchanged at £375bn (vote (9-0).

a. Bank comments on inflation says CPI ‘rose to 0.1% in November and is likely to rise modestly further in the coming months.’

b. UK interest rates. Betting remains on the likelihood of an increase either in Q4 this year or even in 2017.

c. ECB minutes from Dec show some members wished to ease monetary policy further.