Langton Capital – 2016-02-05 – Daily Wrap: US dollar weakness, Just Eat, interest rates & 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:
Big ticket spending:
• Car sales still looking good (see Nick Bubb this morning for data) with sales at 11yr highs.
• But, if the share price moves of some of the majors (Pendragon down 30% in a few weeks) is to be taken at face value, the market would appear to believe that the bulk of the recovery may now have happened
• This could lead some to suggest that consumer spending may switch back towards smaller-ticket items in the coming months
US dollar weakness:
• The US Fed put rates up in Dec 15.
• The thinking then was that rates would go up Stateside four times in calendar 2016 (in the quarter-end months)
• Thinking now is that rates will actually go up between zero and four times
• And Zero is winning out with many observers now saying that the Dec 15 hike was a mistake and that there should be no further increases until 2017 at the earliest
• IG has betting on a December rate rise (the first this year) as only 47% likely
• This has hit the US dollar. We’re told that the Greenback is on course to record its worst week since 2009.
• Sterling looks as though it has strengthened (which it has) but this is due to USD weakness rather than GBP strength. The GBP actually fell yesterday against the Euro
• So a weaker USD is being priced in.
• As most commodities are priced in USD, this may mean that commodity prices (in Euros, GBP, Yen etc.) are cheaper but, in fact, it often means that the USD prices rise in order to compensate for this
• Either way, holidaymakers will notice the difference in Florida but it’s unlikely that the price of oil and/or soft commodities will fall in Sterling terms just because the Greenback is taking a bath.
Implications for UK interest rates:
• Voting yesterday switched from 8-1 against a rate rise to 9-0.
• This has led some to suggest, Langton among them, that a rate rise in the UK during the current year is unlikely.
Just Eat continues with roll-up strategy:
• Just Eat has announced four acquisitions for a total of €125m. See earlier email for detail.
• Shares up sharply in response – albeit from a sold-off position.
• Group says the acquisitions, in Spain, Italy, Brazil and Mexico, will be ‘accretive to adjusted EPS for the 2016 financial year and to add £5 million to 2017 EBITDA.’
• Arithmetically, with JE’s rating sitting at around 50x for the current year, this is perhaps unsurprising.
• Taking the above back a stage, it is equivalent to saying that, when you add in synergy benefits etc., JE is making the acquisitions on a PER of <50x
• Nonetheless, the group’s shares wanted to bounce and they have manged to do so
Random information, hopefully not all of it useless:
• JDW now spent £5.14m on buying back 820k of its own shares at an average price of 626p over the last couple of weeks
• Waitrose’ halo slips. Sales in the week to 30 Jan down by 2.4%. Suggests LfL sales could be down by as much as 5%. It says that it was “a challenging week”. On the back of what we believe was a disappointing Christmas for the upmarket retailer, one may begin to question its performance over the near term.
• Commodity prices pinging around. Cocoa now very weak and sugar, which had been strong, may be rolling over
We’re so 21st Century, this morning’s Tweets (diff. font size denotes importance):
1. Just Eat has announced acquisition of 4 businesses from Rocket Internet in Spain, Italy. It also announces two buys in Brazil and Mexico
a. Just Eat to pay €125m for four acquisitions to be funded in cash. Says ‘are highly complementary to JUST EAT’s existing businesses’.
b. Just Eat says will generate significant volume and scale benefits in the markets in which it is expanding.
2. JDW has bought back another 23k shares at a price of 680p.
3. US Centres for Disease Control, has said that women shouldn’t drink unless they are on birth control.
4. Brewdog is to move into the craft spirits market with the launch of its new distillery, The Lone Wolf.
5. EasyJet founder Sir Stelios Haji-Ioannou’s 25p-an-item budget food store has closed temporarily after running out of stock
6. On the Beach updates on trading ahead of AGM later today, says ‘the Group has performed well in the first 4mths of the financial year.’
7. Global demand for air travel in 2015 was the strongest in 5yrs + well above the 10-year average annual growth rate of 5.5% per IATA
8. Jobs in the UK’s tourism industry increased by 12% in 5yrs to 2014 thanks to strong growth in accommodation + F&B.
9. The jump in money spent on Airbnb lodging could affect the rise in average daily rate among the hotel industry, according to a USA Today report
10. B of England votes 9-0 to hold rates at 0.5%, observers say rise unlikely this year. Possibly not even next, keeps QE unchanged
a. Bank of England says inflation to remain below 1% for remainder of 2016. Observers say rate rise not likely this year
b. Dep. Gov. of Bank of England Ben Broadbent has told the BBC that ‘the fall in oil prices has been a “net good” for the economy.
c. EC cuts economic growth forecast for the Eurozone this year from 1.8% to 1.7% (was 1.6% in 2015).
d. UK house prices rose by 9.7% in the year to January per Halifax