Langton Capital – 2016-01-29 – Daily Wrap: JDW’s buyback, soft drinks, milk prices, the cost of oil & other:
Leisure Wrap & Other:
So the trading day is grinding to a close. Wef’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:
JDW still buying shares back:
• Nobody to our knowledge has called for the Fourth Official to examine a slow-motion replay but the shareholders who sold out to JDW at around 610p last week must be ruefully looking at where the share price is now.
• Because, whilst nobody forced them to sell their shares, some 625k were sold at 613p – to the company itself for cancellation – meaning that some £363k has been foregone in the last week or so alone (the shares are 671p at the time of writing.
• Anyway, it is what it is.
• But the fact that JDW is going on with its buyback even up here in the mid-660s suggests that it is serious about retiring some stock
• It has spent £4.2m to date.
• This, if it were geared up with a bit of debt to say £6m, equates to around three or four freehold pubs that the group has decided not to build.
• Of course the capex (vs buy back) decision is not binary. There are many other variables but it would appear that the group is firmly moving – at least for the present – down one road rather than the other
Random information, hopefully not all of it useless:
• AG Barr says that the UK market remains tough. Perhaps there is an exodus from sugar? But soft drinks in general are selling relatively well in pubs suggesting that both 1) the on-trade is a relatively small part of the market and possibly 2) that new entrants and quirky suppliers such as Fevertree and Innocent, are continuing to take share.
• Travel stocks weak yesterday as the flip-side of a rising oil price. Carnival, IAG and TUI were in the FTSE100’s top ten losers.
• Overall, markets better. China had its first up day in five. This week the UK should end higher. Will be the first up-week this year.
• Oil & minerals strong yesterday. Tech stocks & defensives lower.
• Sterling down again yesterday. Testing year lows. Dig out all those old stories about more expensive holidays, higher import costs etc.
• Oil price over $34. Some upward moves in non-precious metal prices but soft commodities weak.
• Dairy farmers are apparently due for another tough year in 2016 – see earlier email. We’ve periodically produced the chart below, so this does not come as a surprise to us. The flipside is that input costs for producers such as Premier Foods should remain lower for longer. This will aid margins. Re the chart, the lower line, which flatters to deceive, is for Northern Ireland only. The general UK lines are broadly flat.
• Check out sugar price. Now looking as though it may be rolling over after very sharp fall yesterday. Still up 6% on the last 12mths, however.
• Other softs. Cocoa price now in the doldrums. Had been sharply higher on a rolling 12mth basis but now only up 3% on the last year and down sharply in the last month.
• Coffee price still pants. Down 29% over the last 12mths.
• White meat prices rising a little. Price actually 2% higher on a year. Chicken tends to track hog prices. Meat suppliers tend to prefer slight falls in price. They say rising prices are like Teflon – you pass them straight on and try not to get stuck with them – whilst falling prices are like Velcro, you tend to stick customers with higher prices for a little while and restock at lower costs.
More from Nick Bubb:
• Deloitte Watch: We dragged ourselves way from the screens yesterday to go and listen to the Deloitte “Retail Trends 2016” Breakfast Briefing in the City and enjoyed the overview of Christmas trends and key industry trends from Ian Geddes, their Head of Retail, although he was perhaps over-reliant on the suspect ONS Retail Sales data for December. And we also enjoyed the presentation from the hip-looking CEO of New Look, Anders Kristiansen, who joked about the British obsession with the weather…
• CBI Watch: The silly CBI Distributive Trades survey for “January” came out yesterday morning and as it’s only a measure of volume growth it’s hardly worth bothering with, but, for what it’s worth, 41% of retailers said that sales volumes were up in January on a year ago, whilst 25% said they were down, giving a “percentage balance” of +16%. This was a little lower than the previous month (+19%), but above expectations (+9%). The CBI’s Director of Economics, the oddly named Rain Newton-Smith, said: “Retailers have had a steady start to the year through the January sales period. However with competition remaining fierce and persistent price deflation in the sector, it’s not surprising the outlook for retailers in February looks subdued”.
• Consumer Confidence Watch: The latest GFK Index shows that consumer morale rose for a second month in a row in January (to hit its highest level since last summer), but households remain pessimistic about the outlook for the UK economy. The overall consumer confidence index rose to +4 in January from +2 in December (stronger than a median forecast of +1 in a Reuters poll of economists) and “UK consumers remain resiliently bullish this month with no sign of the January blues denting their view on the state of their personal finances for both the past year and also for the rest of 2016”, according to Joe Staton, the Head of Market Dynamics at GfK.
• Today’s Press and News: There are a few snippets about the subdued CBI Distributive Trades survey and the disappointing Amazon Q4 sales figures in the US, whilst the Times reports that the fashion chain Reiss is examining plans to sell a minority stake in the business and the lead story in the FT market report is that Home Retail was hit by reports that the major hedge fund Tosca has been selling down its stake.
• Waitrose Sales Watch: After a disappointing Christmas, Waitrose has reported today that January is ending badly, with sales 1.8% down overall (excluding petrol) in w/e Jan 23rd, which would be over 4% down LFL, in what Waitrose call “a week of low-key promotional activity”. Over the last 25 weeks, Waitrose sales are cumulatively running 1.4% up in gross terms (c1% down LFL).
• John Lewis Sales Watch: Even though the big Clearance Sale was over, trading continued to be strong for John Lewis last week, driven by 15% growth in Electricals, with total sales up by 7.0% (over 5% up LFL) in w/e Jan 23rd. Online sales continued to forge ahead last week, up by 22%, so Store LFL sales were not good, with Oxford Street down 8.7% and Bluewater down nearly 6%. With the final week of the year now well underway, over the last 25 weeks, John Lewis is cumulatively running 4.9% up (just under 3% up LFL), with Online c18% up.
• BDO High Street Sales Tracker: Unlike John Lewis, the weekly High Street sales index of medium-sized Non-Food chains assembled by the accountants BDO paints a gloomy picture of underlying Fashion store trading momentum last week. Overall Fashion store LFL sales were down by 4.2% on last year in w/e Jan 24th and Total store LFL sales that week were down by 4% (including some Lifestyle and Homewares retailers), whilst overall Non-Store/Online sales were up by 17%.
We’re so 21st Century, this morning’s Tweets (diff. font size denotes importance):
1. JDW Thurs bought back another 35k of its own shares at a price of 664p. It has now bought back c685k for £4.2m (av. 616p) in last 10dys
2. AG Barr updates on Q4, says ‘is expected to deliver revenue growth in excess of 2.5% in the period.’
a. AG Barr: Growth in Q4 is despite tough comps, says is ‘lapping a prior year fourth quarter revenue growth performance of 5%.’
b. AG Barr: Says ‘the soft drinks market in the UK has continued to be challenging and highly competitive’
3. Greene King OPA is now the Official Beer of England cricket after signing 5yr sponsorship deal with the England and Wales Cricket Board
4. Britain’s dairy farmers face another year of crisis per official stats which project a halving of incomes to an average of £46,500
5. PE firm KKR is now one of the leading contenders to buy the Grolsch, Meantime and Peroni beer brands
6. Kuoni says EQT is its preferred bidder in the competitive process regarding a potential takeover offer for Group
7. British Airways Travel Report’s survey of more c5,000 people says c5.8m people will book holiday in January.
8. Rank reports H1 numbers, says has turned in ‘good set of results with like-for-like revenue growth across all brands & channels’.
a. RNK H1: Group revenue £374.2m (+3%), EBITDA £62.7m (+1%) and PBT £42.7m (+18%). EPS +17% at 8.1p, H1 dividend 1.8p (+13%).
b. RNK H1: Says revenue LfL is +5%, digital revenue +14%, Grosvenor Casinos +7%, Mecca retail +2% LfL.
9. ONS figures show UK economy grew 0.5% in Q to end-Dec, bringing the annual rate of growth for 2015 to 2.2%
10. Oil continues to rally. Trading at $34.25, beyond the $32 at which the CTAs said they would re-commence selling.
11. B o Japan introduces negative interest rate of -0.1%, meaning the central bank will charge commercial banks 0.1% on some of their deposits