Langton Capital – 2016-01-25 – Evolution in F&B, PPHE, oil prices & other:
A Day in the Life:
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Find previous emails at http://www.langtoncapital.co.uk/daily-notes/
Our nine-year-old has been doing a project on space and, between lecturing me that Saturn has 62 moons and that Mars is the outermost of the rocky planets (because duh Pluto isn’t a planet any more) she’s actually been learning quite a bit but here’s a thought for you, what if all this space business has just been made up?
What if the earth really is flat or, even if it’s round what if the sun and the planets and all that other debris up there is really rotating around the earth or is painted on a big board and held up every night for us to look at, would the majority of us really know?
I mean I know I wouldn’t. The eggheads tell me the tides would go mental and that things are light-years away but how am I meant to get my head around that?
Much easier to understand is the fact that the Mighty Hull City is top of the Championship helped by a Middlesbrough loss and having slipped past Fulham 1-0 at the weekend. That’ll do nicely. On to the news:
Pub, Restaurant & Drinks Producer News:
• The BBPA is calling on publicans to email MPs asking them to back the body’s campaign to secure a fourth cut in beer duty. Brigid Simmonds, BBPA Chief Executive, said: ‘With our email tool, joining the campaign for a fourth cut in beer duty only takes a few seconds. I hope as many people as possible visit the website and send a message to their MP. There is also a huge amount of local information available that clearly shows how important beer and pubs are to our economy, in every part of Britain.’
• A report by the Evening standard has found that bar forward bookings are up 60% despite supermarkets reporting lower alcohol sales as a result of ‘Dry January’. We would suggest not reading too much into these statistics.
• UK contactless payments hit £1bn in November, a four-fold increase since Jan 2015. The limit rose from £20 to £30 in Sept 15.
• In a further sign of its retrenchment to its core business, Tesco is to shut its two “Food-to-Go” stores in London reports The Telegraph
• Coaching Inn group has appointed Isabel Diggins as its new revenue and marketing manager.
• Global sales of scotch are forecast to grow by 5% a year between 2015 and 2020 thanks to an increasing appetite for premium whiskies. Research from Tachnavio suggests nearly nine in ten consumers around the world now view Scotch as an ‘affordable luxury’, with premium blended Scotch set to benefit the most from the category’s rising profile.
• Speaking to the Drinks Business, Rosemary Gallagher of the Scotch Whisky Association said: ‘We’re seeing some strong signals of growth in Scotch Whisky exports with clear evidence that the recent decline in Scotch Whisky is slowing. In the first half of last year, exports totalled £1.7bn, with Single Malt exports up 5% to £406m. The long-term prospects for Scotch Whisky remain good. This is reflected in the large number of new distilleries opening, with half a dozen starting production in the last year or so.’
• Uber is planning to expand its meal delivery service, UberEats, to ten cities across the US, including LA, Chicago and Austin.
• Asda, Tesco and Morrisons are all cutting the price of their diesel by 2ppl to its lowest price in six years. Morrisons Petrol retail director Bryan Burger commented: As long as oil prices continue to fall we’ll keep on bringing pump prices down.’
• The mild winter weather helped drive a 1% decline in the volume of goods sold in UK shops in December, with sales of clothing and footwear down 6.2%. Volumes rose 2.6% over the whole year, however, despite the disappointing December figures.
• Oakmans Inns & Restaurants has completed the acquisition of 3 new sites to take its portfolio to 16 units
• Mountain Warehouse may IPO at a valuation of over £200m reports the Sunday Times.
• Institute of Economic Affairs jumps on Langton bandwagon. The IEA has said that ‘a huge proliferation in traffic regulations over the past twenty years has imposed a heavy burden on the economy.’ It says ‘just a two-minute delay to every car journey equates to a loss of approximately £16 billion every year, equivalent to almost 1 per cent of GDP.’ It adds that ‘the number of traffic lights in England has increased by 25% since 2000. By comparison, vehicle traffic rose by 5%, and the length of the road network by just 1.3% in the same period.’ The IEA says ‘not only is a majority of traffic regulation damaging to the economy, it also has a detrimental effect on road safety and the environment, whilst imposing huge costs on road-users and taxpayers across the UK.’
• PPHE Hotels updates on trading, says revenues +12% y-o-y. It says this ‘reflects continued strong demand’. Constant currency revenues +5%. The group says FY numbers are expected to be in line with the Board’s expectations. It adds ‘the Group has a strong development pipeline which includes the expected opening of three new hotels and an extension during 2016 and Boris Ivesha, President & Chief Executive Officer, PPHE Hotel Group concludes ‘2015 has been another strong year for PPHE Hotel Group with pleasing year-on-year hotel revenue and RevPAR growth achieved. We are continuing to invest in the expansion and improvement of our hotel portfolio, which includes three exciting new hotels due to open in 2016, a hotel extension and an extensive renovation programme.’
• Carlson Rezidor Hotel Group owner Carlson is contemplating ‘strategic alternatives’ that include a sale or merger of the company, writes The Wall Street Journal.
• Despite being the largest travel market in Europe, Germany lags its peers in adopting online booking, according to a report from Phocuswright. ‘Online travel bookings increased to €23.9bn ($25.8bn) in 2015, yet online penetration to 41%—well below the 47% European average. But Germans demonstrate increasing confidence both researching and purchasing travel online as smartphone penetration increases,’ writes Phocuswright senior market analyst, Ralph Merten, in the report.
• The U.S. hotel industry reported positive results in the three key performance metrics during 2015, with occupancy up 1.7% to 65.6%. The average daily rate was up 4.4% on 2014 levels to $120.01 and RevPAR rose 6.3% to $78.67 according to data from STR, which described 2015 as ‘the strongest year on record for the US hotel industry.’
• Tui UK has cancelled its summer programme to Tunisia and will not restart flights until at least 1 November. The British Foreign Office continues to advise against all but essential travel to the country.
• LDC-backed Away Resorts has acquired Cosways Holiday Parks for an undisclosed amount, making it the fifth park in Away’s portfolio.
• Dublin-based taxi dispatch technology company iCabbi plans to use its €1.2m acquisition of taxi communications service Disc to expand into the UK market. The company plans to compete with Hailo and Uber, and already commands 70% of large Irish taxi companies.
• Norwegian Cruise Line is to spend $400m revamping nine of its 14 ships.
• Campaign to oblige government to ‘at least halve’ APD gains momentum, 20 MPs so far signed an Early Day Motion.
• London international visitor numbers hit a record 5.2m in the quarter to end-Sept. per ONS. Figures +5.9% on 2014. London Mayor Boris Johnson said ‘London is the best big city on the planet. We really know how to roll out the red carpet and put on a show for the millions of visitors who flock here year after year.’ He added ‘only last week, Lumiere London, the city’s biggest-ever light festival, gave over a million people an unforgettable experience in the West End and King’s Cross.’ He concludes ‘with another exciting programme of events planned this year, as well as our unbeatable cultural and other attractions, we are looking forward to welcoming even more tourists in the months ahead.’
• London also recorded an increase in the number of UK visits to the icty with 9.3m in the first 9mths of 2015.
• ONS reports overseas visitor numbers for whole of UK up 4.7% in Q3 to 10.5m visits. This despite relative strength of Sterling.
Finance & Markets:
• World markets: UK market up on Friday, Europe higher also. US up in later trade & Far East higher in Monday business
• Oil prices sharply higher Friday on US snow & heating demand. Price through $30 and trading at $32.50 presently
• UK Government borrowing fell by £4.3bn to £7.5bn for the month of December per official statistics
• UK borrowing for first 9mths of year at £74.2bn, some £11bn down on last year – but above full year target of £68.9bn. The Office for Budget Responsibility said ‘meeting our full-year forecast for 2015-16…would require borrowing to fall by £20.2bn in the year as a whole.’ It says ‘that implies an overall surplus of around £5.5bn over the next three months, compared with a £4bn deficit in the same period last year.’ The implication is that the target may be missed.
• IMF head Christine Lagarde has confirmed she will stand for a second term.
• IMF’s Ms Lagarde has warned that a Brexit could be the biggest threat posed to the European economy
• Number of profit warnings in the UK on the rise reports Ernst & Young. There were >100 warnings for London listed shares in Q4, the highest number for 6yrs.
Langton Food Retail Index – The Grocer’s Dozen
Ocado’s share price recovered some of its recent losses last week on rumours of a potential tie-up with Amazon. The rest of the Food Retail Index underperformed the FTSE 100 and All-Share, with Poundland again faring poorly.
Ocado shares jumped by 16% on Tuesday morning before giving back some ground and ending the week 8.33% up at 275.8p, based on ‘rumours in the City’ that Amazon is weighing up a takeover bid.
Amazon already has its own grocery delivery business in the nascent Amazon Pantry, although buying Ocado would let the internet retail giant to take out its biggest competitor in the UK and hit the ground. Ocado has been looking for some time for an international partner and its share price has tumbled by more than 50% since its 2014 high of over 600p as one has failed to materialise.
Nevertheless, the group’s shares remain highly rated. Even at current levels the business has a market cap of £2.38bn, meaning a deal would be no bargain for Amazon. The number of short positions on Ocado has ramped up over the past week as hedge funds bet against the rumours to the tune of £275m and we would not be surprised to see the share price give back its gains.
Poundland again had the worst week by some margin, down 6.91% to 148.3p. The retailer trades on a price-earnings of 10.9 and is opening new stores rapidly, but we question the strength of its business model. Strong competition with robust sourcing and pricing models, alongside a discerning consumer with a growing disposable income, call into question the group’s capacity for like for like sales growth. Jack Brumby – email@example.com
Retail Roundup from Nick Bubb:
Dixons Carphone: Ahead of tomorrow’s Xmas trading and Strategy update from Dixons Carphone, the hard-working IR team has circulated to analysts the following consensus forecasts for LFL sales: UK +4.0%, Nordics +1.0%, Southern Europe +2.5% and Group +3.0%, with full year underlying PBT (y/e April) expected to be £440m.
News Flow This Week: The big news day this week is tomorrow, with the Dixons Carphone Xmas trading/Strategy update (see above), plus the Carpetright Q3, the Card Factory Xmas update and the Apple Q1 out in the US. And as the end of the month is approaching rapidly now, we get the CBI Distributive Trades survey for “January” on Wednesday and the monthly GFK Consumer Confidence Index is out first thing on Friday. Nick Bubb – firstname.lastname@example.org
This was produced for distribution Friday 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:
JD Wetherspoon buyback:
• JDW has spent c£3.8m this week so far (we won’t be notified if there has been any buying Friday until Monday) buying back its own shares
• It has paid £3.83m to buy back and extinguish 624,794 shares – an average price of 613p per share.
• This adds up to about two new pubs – assuming that they were both paid for in cash – or perhaps three new pubs if some borrowings were taken out against them
• Hence JDW is making good on its promise that it would move cash from new build to share buybacks on an opportunistic basis
• It flagged up the move by announcing at its Q1 update that it would open around 15 new units in the current FY and then by edging this back to ‘ten to fifteen’ at its Q2 update.
• In addition, the group has been buying in the freeholds of units that it currently rents but, when it comes to increasing the size of the group’s footprint, there is a definite scaling back going on
Coffee – mature market:
• So who’d be a bear, huh?
• Just when you think it might be safe to suggest that the world has enough coffee shops, Starbucks comes up with 8% LfL sales growth – and 9% sales growth it the most mature market of all, the US.
• Sure ‘only’ 4% is due to traffic (the rest is price) but that’s 4% on a big number on a big number on a big number, etc.
No tipping restaurants more common in New York:
• For anyone who’s been chased down the street in New York (and in Chicago, for that matter) by a waiter keen to explain that he/she expected 20% not a paltry 10% odd on the bill, it may come as a surprise that there are a growing number on tip-free restaurants in New York.
• Ha, yeah, self-service restaurants you may add but no, for rea.
• Restaurant News – here – carries the story that Union Square Hospitality Group now no longer accepts tips at its 13 full service restaurants
• Menu prices have been increased accordingly
• Boss Danny Meyer has said he thought raising menu prices was a ‘more honest approach’
• Restaurant News quotes Meyer as saying ‘the practice of tipping was an obstacle in the company’s efforts to “provide even more meaningful career opportunities and advancement for our 1,800 employees”’ and it adds that ‘the change would allow for more equitable pay for his staff members.’
• Meyer says ‘hospitality is a team sport’ and adds ‘many of our colleagues — our cooks, reservationists, and dishwashers to name a few — aren’t able to share in our guests’ generosity, even though their contributions are just as vital to the outcome of your experience at one of our restaurants.’
• No (very poor) pun intended but possibly food for thought?
Random information, hopefully not all of it useless:
• Oil price up overnight, oil stocks rallying, markets better. Traders saying oil may go to $32 in a hurry but, at that point, a number of them are suggesting selling it
• Sterling up a little, adds to the feeling that markets are pausing for breath. Would be a brave observer who felt bold enough to say that the worst is over
• Defensives giving a bit back on the equity markets