A Day in the Life:

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Find previous emails at http://www.langtoncapital.co.uk/daily-notes/ 

So our major problem over Christmas, other than the Boxing Day flooding, was that we ran out of teabags and, as shops are only closed on two days of the year, namely Christmas Day and Easter Sunday, that was rather a problem.

In fact, in order to maintain order in the Langton household, it was necessary to make a trip to the York office – and very peaceful that was late morning on 25th of last month – in order to secure supplies before serious quantities, and I mean thousands, could be secured on the following day.

And just as well it was that we made the effort too as, with our Internet down due to flooding on 26th, we could have quickly entered a bad-tempered death spiral.

Anyway, it just remains to be said that the Mighty Hull City is back in an automatic promotion slot having disposed of Charlton by the comfortable margin of six goals to nil over the weekend. Let’s hope we can make it a London double on Saturday at Craven Cottage. Langton will be represented. However, let’s keep the victory celebrations on hold for the moment and move on to the news:

The News:

Pub, Restaurant & Drinks Producer News:

• Coffer Peach Tracker shows Xmas & New Year LfL revenues +1.8% across major UK restaurants + food led pubs

• Tracker: Says ‘drink-led pubs and bars see best of the seasonal uplift’. Says Xmas came late but was strong. Comments ‘after a slow start most of the uplift came in the last two weeks of the festive season.’

• Tracker 6wk data to 3 Jan shows ‘little difference…in the performance of London against the rest of the country.’ That’s a recent first

• Tracker: Says ‘drink-led managed pub + bar businesses, which collectively saw a 3.1% LfL increase over the same period last year.’

• Tracker: Has LfL sales +4.5% in each of the last two weeks of December.

• Tracker: Says restaurants less strong than bars with the best trading outside of London.  Peter Martin comments ‘perhaps the most interesting feature was that the big increases in sales were all seen in just the last two weeks, which included the Christmas and New Year holidays, when like-for-like sales were up by over 4.5% on 2014 in each week’. Mr Martin adds ‘the run-up was slow, and even negative in the last week of November, but built up into a crescendo in the two weeks when many people were off work.’ He concludes ‘although the overall 1.8% increase over the entire period was less than the 2.8% increase seen last year on 2013, it is still a generally performance, as the market as a whole has slowed since last year. Competition is increasing across the board.’

• Tracker has total sales +5.2% (LfL +1.8%) showing the material impact of new openings.

• Tracker: Notes of caution. Coffer says ‘we do predict a tougher 2016 with a marked downturn in consumer confidence + strong completion’. The Tracker adds ‘our chief concern is that continued wet weather, the proliferation of ‘dry January’ and stock market turbulence will impact the current month and negate any gains made over the festive period.’

• Trade bodies Camra, BBPA, SIBA have urged MPs to back another Beer Duty cut in the upcoming Budget. The joint statement says ‘the chief executives of the campaign coalition calling for a cut in beer duty this year…have written jointly to Members of Parliament this week, urging them to support a new Parliamentary motion calling for a one penny cut in beer duty in the Budget on 16th March.’ BBPA CEO Brigid Simmonds says ‘strong support from MPs always gives a real boost to our campaign – we have built a very strong case for further duty cuts to boost employment and protect pubs, as the industry still faces big pressures.’ CAMRA adds ‘the ending of the beer duty escalator and three consecutive beer duty cuts have kept pubs open and kept the price of a pub pint down.’

• Heineken has launched a new ‘Enjoy Heineken Responsibly’ campaign based on research that finds 75% of millennials limit the amount of alcohol they drink on nights out. The centrepiece advert is on TV and youtube and gives the message that responsible drinkers are more attractive. The research also revealed that millennials prioritise taste (41%) and quality (32%) when choosing an alcoholic drink, further supporting the message that licensees and retailers should offer a range of premium beer and ciders.

• Sales of UK organic wine have grown across the independent on and off-trade, with Vintage Roots seeing a 20% increase in sales to food shops, bars, pubs and restaurants in the last two years.

• Nottingham-based brewery Castle Rock has created a hybrid 7.7% ABV ‘bwine’ drink made from the fermentation of both malted grains and Pinot Grigot grapes. The part-beer, part-wine goes by the name of New Era and is the latest in Castle Rock’s Traffic Street Special series. Brewer Dan Gilliland got the idea from American brewery Dogfish Head, which is well known for creating eccentric brews. Gilliland said: ‘I came across this particular type of beer from a brewery in America who had sent an archeologist out to look at some dig sites in Egypt. They came across some residue in a vessel about 5,000 years old that found the general practice was to use a variety of different sugar sources to produce alcohol beverages – including malts, honey and grape juice mixed together. The beer scene is exploding at the moment with different varieties being produced, old styles
being brought back to the fore and people experimenting with different techniques.’

• The ALMR has written to Camden Council ahead of this month’s vote on a late night levy, urging the council to abandon the measure. The ALMR chief exec said: ‘As we fast approach the date of Camden Council’s vote on a proposed late-night levy, we note that the Council has taken steps to effectively grant itself a licence. The Chief Executive of the Council has been quoted in the press justifying the arrangement by stating that the cemetery will act responsibly as a licensee. We hope that, given this development, the Council will show the same degree of consistency when they consider penalising hardworking businesses later this month.

• Levies: ‘Camden Council’s approach to the levy has been frustrating and, despite delays and a potentially invalid consultation, we find ourselves in the testing position of facing down another potentially disastrous levy. The ALMR has vigorously lobbied against the introduction of a levy in the area and has highlighted to the Council the negative impact such a measure would have, as well as the alternatives that are available.’

• Japanese brewer Suntory has ruled itself out of bidding for Peroni and Grolsch, according to reports. Earlier this week, Japanese brewer Asahi Beer emerged as a potential contender for the beer brands.

• Caffe Nero is teaming up with Middle East hospitality group Al Tayer as it looks to expand its portfolio in the region, which currently stands at 20 sites. The group is looking to open seven sites in the Middle East a year going forward. The closures will affect 10,000 US workers and a further 16,000 around the world.

• Booker has announced a 10.5% increase in Q3 sales, with non-tobacco sales up 11.9%, aided by recently acquired convenience chains Londis and Budgens.

Leisure Travel:

• Hilton Worldwide is set to grow its relationship with Amaris Hospitality by converting three UK & Ireland into its brands. Hilton Edinburgh Carlton, DoubleTree by Hilton Glasgow Central and Hilton Garden Inn Dublin Custom House will now be operated by Amaris Hospitality under a franchise agreement.

• EasyHotel has been granted planning permission for a 116 room easyHotel at Bradley House in Manchester, expected to open in 2016/2017.

• Shoppers avoided the high street and wet weather last month, causing high street footfall to decline by 4% YoY in December. Helen Dickinson, British Retail Consortium chief executive, commented: ‘December was the ninth consecutive month in which shopper footfall has declined, with high streets in particular but also shopping malls continuing to fare poorly.’ Retail parks managed to grow their total footfall, however, up 2.1%.

• Australian conglomerate has agreed to buy 256-strong Homebase from Home Retail Group for £340m.

• The US hotel industry had mixed results during the week to 9 January, with occupancy down 2.6% YoY to 48.8% but average daily rate up 1.8% to $111.30. The data from STR also shows RevPAR slipping 0.9% to $54.26.

• Accor will open three new ibis and Novotels in the UK in 2016 and 2017 as part of its target to increase its number of UK and Ireland rooms by more than 30% by 2017. Two of the sites will be under its ibis brand and one will be an Accor, as the French hotel giant commits to expanding its presence in the budget end of the market.

• Serviced apartments are now a ‘mainstream’ accommodation choice for business travellers, according to booking.com. Booking.com area manager Jason Grist said: ‘Serviced apartments now represent a meaningful part of the accommodation offering on Booking.com, with over 3,000 available in the UK including more than 1,000 in London alone. It’s easy to understand why, as our leisure and business travellers really enjoy the variety, range, flexibility and value for money that serviced apartments can offer.’

• Serviced Apartments: The Association of Serviced Apartments CEO James Foice, also put forward his view, commenting:  ‘It’s fantastic to see serviced apartments now established as a mainstream accommodation choice on Booking.com, such a key online booking platform… 2016 will be a game-changing year for our sector with the Savills Extended Stay report released last month confirming the serviced apartment sector is set to be the UK’s fastest growing hospitality segment in the next 2 years.’

• A total of 109 million outbound Chinese tourists spent a record $229bn in 2015, according to stats from GfK. Until 2013, Hong Kong was the preferred destination for China’s outbound tourists, but by the start of November 2015, the top destinations shifted (in order) to South Korea, Thailand, Hong Kong, Japan and Taiwan. Europe remains the top destination outside of Asia for outbound Chinese tourists, followed by North America and the Middle East.

• Terrorism continues to overshadow the leisure travel industry after further killings in Central Africa over the weekend

Other Leisure:

• Reuters has reported that PE group Arle Capital, owner of Spain’s theme park operator Parques Reunidos, is considering an IPO for the company. The group could list for around €2bn.

Finance & Markets:

• Labour’s Jeremy Corbyn says big companies may be prevented from paying dividends if they do not pay the NLW. That may be slightly missing the point as 1) big companies will not break the law in any case (it’s the mom and pop operators that might) and 2) dividend blocks would impact the income for pension funds & take money out of poorer retirees’ pockets

• World markets in bad start to 2016. Dow down 8.2%, NASDAQ off 10.8%, FTSE 7.1% lower, DAX off 11.5%, Nikkei off 9.9%, Hang Seng 10.8% lower etc.

• US retail sales down in Dec on back of unseasonably warm weather

• US industrial production also down in US in December

• European car sales up to 14.2m units last year. Is up 9.2% but still lower than pre-crisis levels

• World markets: UK and Europe down on Friday. Rout worsened during Wall Street hours. Asian markets down in Mon trade

• Oil prices plumbing new depths. Trading at around $28.70 per barrel after sharp falls on Friday

• UK construction output down in Nov on a y-o-y basis. Fall of 1.1% was greater than market expectations of around unchanged

• The richest 1% now has as much wealth as the rest of the world combined according to Oxfam and data compiled by Credit Suisse. The world’s richest 62 people have as much wealth as the poorest half of the global population. Oxfam has urged leaders meeting in Davos this week to take action on inequality and address lobbyists and the scale of funds being kept in tax havens. It takes cash and assets worth $68,800 (£48,300) to get into the top 10%, and $760,000 (£533,000) to be in the 1%,m meaning that if you own an average house in London without a mortgage, you are probably in the 1%.

Langton Licensed Retail Index – Major Movers

A very poor performance last week with the majority of the sector underperforming the wider market as wobbles at some of the LRI’s most popular companies eroding confidence.  The Index was down 6.6% while the wider market fell 2.15%.

Pubs

All the big pub companies performed poorly last week.  M&B was the worst, down another 9.79%, while Marston’s (-6.44%), Greene King (-5.7%) and Wetherspoon’s (-4.07%) were little better.  The Restaurant Group mentioned last week that ‘the trading environment for many consumer facing businesses has been tougher in recent months’, perhaps leading some investors to take money out of the sector.

In tenanted pubs, Enterprise fell in line with the other pub companies, down 6.86% over the week, though Punch avoided any drama ending the week unchanged.

There was disparity too in the London pubs as Young’s fell 5.06% but Fuller’s was one of the index’s two risers, up 1.95%.  

Revolution Bars was the only other riser in the index, rising 4.65% over the week as a broker buy note buoyed the stock.  The group has its H1 trading update on Tuesday (tomorrow).

Other Leisure

The week saw investors again fleeing old favourites after disappointing results.  The Restaurant Group disappointed investors who have grown used to consistent outperformance, but last week produced full year numbers which saw LfLs down to +1.75% for the year down from +2% at week 45.  On face value these numbers suggest as much as a double digit drop over the last 7 weeks of the year, a period which included the release of Star Wars, however it is worth noting that this drop may be seem exaggerated by the group’s rounding of LfL moves to the nearest quarter percent.

Patisserie Valarie saw its shares down 16.85%, perhaps as investors re-examine highly rated companies in the wake of big drops in the likes of Gregg’s and The Restaurant Group shares.  Even post-drop the group’s shares trade on a rating of c25x earnings, which, despite the company’s obviously strong growth prospects, is a fairly full price.

Cineworld saw its shares fall 11.46% last week following numbers out on Tuesday.  Total revenue for the group was up 12.3%, with the UK and Ireland up 11.6% while profits were ‘in line with expectations’.  The group’s shares took an initial hit on the day of its results, followed by another drop later in the week, presumably in sympathy with The Restaurant Group’s disappointing numbers, with some investors perhaps disappointed that the stellar performance of Star Wars at the box office hasn’t translated through to profits at the group. Will Brumby – will.brumby@langtoncapital.co.uk

Langton Food Retail Index – The Grocer’s Dozen

Another red week means that the first fortnight of 2016 has proven to be the worst start to a year for global indices since 1928, with the DOW and the DAX down c10% and the FTSE 100 down c7%. This underperformance pales in comparison to the volatile and retail investor-dominated Shanghai composite, down just under 20% in 2016 alone. Global fears abound, from a China slowdown and related commodity price weakness, to the repercussions of a tumbling oil price and increasingly numerous terrorist attacks. Under such conditions, it is unsurprising to see our Food Retail Index, built upon the relatively insulated platform of UK consumer spending, outperformed the FTSE 100 and even reported a modest gain of 0.64%.

Grocers

Kantar released its grocery market share data for the 12 weeks ending 3 January 2016, concluding that there was ‘no Christmas uplift for the British grocery market, as sales fell by 0.2% on last year thanks to continuing price deflation. Kantar Worldpanel did note a 0.8% growth in total sales for the 12 weeks to 3 January for Sainsbury’s. Tesco, Asda and Morrisons all saw sales declines, according to the panel, (of 2.7%, 3.5% and 2.6% respectively) and all lost market share to the fast growing discounters, again suggesting that Sainsbury’s proposition is more resilient than its rivals.

Morrisons: The co (+7.2% to 162.9p) exceeded market expectations for the nine weeks to 3 January, reporting ex-fuel sales up 0.2% and like for like number transactions up 1.3%. The northern food retailer is cutting back on net new space and has cut prices (excluding fuel) by 3.2% this year and 7% over the past two years. There remains a tangible price premium of perhaps 20% to the hard-discounters, however, suggesting that prices will have to be pushed down further across the Big Four.

Looking forward, Morrisons still expects H2 underlying profit before tax to be higher than H1 and expects FY underlying PBT to be in the range of £295m-£310m (before the £60m of costs). MRW. The group’s balance sheet remains strong, although its debt reduction target for 2015/16 has been further reduced and net debt guidance is now for £1.65bn-£1.8bn. It is continuing to focus on its cash flow improvement programmes and now expects benefits from working capital and property disposals to exceed expectations.

Sainsbury: In the words of Sainsbury’s (+0.83% to 243.9p) CEO Mike Coupe, however: ‘deflation and pressures on pricing will ensure that the market remains challenging for the foreseeable future.’ Sainsbury’s bid target, Home Retail, posted slightly underwhelming figures in the week but news that it may be offloading Homebase to Australian retailer Wesfarmers for £340m will be enough to keep rumours swirling.

Tesco: Meanwhile, Tesco (+10.48% to 164.45p) 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 customer transactions and a 3.5% rise in volumes. The strong results were helped by ‘unsustainable couponing in the prior year’ distorting comparatives and mark the group’s first reported increase for over four years. Jack Brumby – jack.brumby@langtoncapital.co.uk

Retail Roundup from Nick Bubb:

Saturday Press:
There was plenty about Friday’s stockmarket slump on the Business pages of Saturday’s papers, although the most interesting front page headline was perhaps in the Telegraph: “Easter to fall on same week every year” (flagging that the Archbishop of Canterbury is keen to fix the date of Easter in mid-April, although it could take 5-10 years to implement). The reassuring Bonmarche update on Friday only merited snippets in the Times and the Telegraph, with the Times giving more space to the news that if Wesfarmers win control of the Homebase DIY chain they will rename it Bunnings, ie the name of their Australian DIY chain. The Times also flagged that Wal-Mart has announced that it will close 269 stores globally (mostly the trial small store Walmart Express chain in the US and stores in Latin America). The Daily Mail flagged that charges are imminent in the
Serious Fraud Office investigation into accounting irregularities at Tesco and also had a snippet about the Retail Week website story that BHS is in talks with the Polish clothing retailer LPP (trading as Reserved) to lease them its Oxford Street store. The veteran columnist Chris Blackhurst in the Independent flagged that the big attraction of Argos to Sainsbury is its cutting-edge IT systems and said that it is surprising that Asda does not appear to be taking more of an interest in Argos. A columnist in the FT Money section highlighted that the big cut in petrol prices could have driven the “Black Christmas” for the major UK supermarket chains. However, the Yorkshire Post noted that LFL sales at the privately-owned Booths supermarket chain in the North-West were down by 1.4% in the period from December 13th to January 2nd. Finally, the FT had a big feature on the news
that Lidl saw bumper LFL sales growth at Christmas, but rival discounter Aldi appears to have suffered broadly flat LFL sales…

Sunday Press:
The Sainsbury bid for Home Retail was a big topic for the Sunday papers, with the Mail on Sunday flagging that Lord Sainsbury has given his blessing to the deal, although the Sunday Times highlighted a comment from Home Retail CEO John Walden that Argos can go it alone, without a partner like Sainsbury. However, the Business Editor of the Sunday Times looked at the bid situation in his column and concluded that “after some jockeying” Argos will eventually become part of the Sainsbury group. The apparent revival of the big supermarkets at Christmas got some attention as well, but the Sunday Times ran an article flagging that although the “Big 4” may be celebrating “it was the discounters who really won Christmas”, whilst the Business editorial in the Observer said much the same thing, noting that the battle is far from over for the big
supermarkets and that Asda may yet decide to flex its muscles. The Observer also had a prominent preview of the WH Smith trading update this week, noting the recent decline in its share price (as well as the threadbare state of its carpets in the High Street stores…). In the Mail on Sunday, Midas column said that shares in SuperGroup are a firm Hold. The Sunday Telegraph flagged that a senior fund manager at Aviva (one of Sports Direct’s bigger shareholders) has said that Sports Direct must improve its relationship with Nike and it also noted the strong 5.9% LFL sales growth at Christmas reported by Paperchase. Finally, the Sunday Times highlighted that Next is in talks to replace the Plaza shopping centre on Oxford Street with a flagship store and it also interviewed the bullish new Chairman of Debenhams, Ian Cheshire, quoting him as saying that there is “no silver
bullet” for the business but that there are “multiple opportunities”.   

Grocer Watch: On the back of all the trading news from the Food Retailers last week, the widely followed Grocer “33” weekly supermarket pricing survey in Saturday’s magazine saw Asda win again, with its £63.04 basket £3.57 cheaper than its 2nd placed rival Tesco and over £10 cheaper than Waitrose…The separate Grocer “Mystery Shopper” weekly survey on Store Service and Availability was won by Morrisons, as their small 24,000 sq ft supermarket at Hunter’s Tryst in Edinburgh topped the rankings (albeit with a modest score of 60 out of 100, in a low-scoring week). In his column, the Editor looked back at Christmas and declared that the big winner was Lidl and that the big loser was not Asda but Iceland…

News Flow This Week: Last week was incredibly busy, but, things are, thankfully, a bit quieter this week, although there’s still plenty going on. Home Retail has confirmed today that it has agreed to sell Homebase to Wesfarmers and return £200m to shareholders. Philip Green will be interested to hear the MySale trading update tomorrow and supermarket property investors will also be interested to hear what British Land have to say in their Q3 update. Then Wednesday brings the WH Smith Xmas update and the Pets at Home Q3, whilst the Halfords Q3, the N Brown Q3 and the Land Secs Q3 are on Thursday and the ONS Retail Sales for December are on Friday. Nick Bubb – nicholas_bubb@hotmail.com

Friday Wrap:

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:

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.

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

• And Restaurant Group has been similar.

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

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

DOM, CAKE. Highly rated stocks continued:

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

• 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.

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.

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

• 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.

• 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.