Langton Capital – 2016-02-12 – Miller Coors, Pepsi, hotel markets & other:
A Day in the Life:
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Find previous emails at http://www.langtoncapital.co.uk/daily-notes/
So it’s Friday and that’s a relief because, though the market is indicated to open up some 25pts first thing this morning, this week feels as though it has been the worst for the general index for some time.
But that’s just a little misleading. If the market holds a 25pt gain today then it will finish the week down only 280pts – and it feels considerably worse than that so perhaps it’s because it’s been so consistent with seven of the last nine trading sessions ending in the red.
Anyway, whatever the reason, traders will be glad to see the back of it and, with it getting lighter in the morning and the birds beginning to sing, perhaps they’ll be in a better mood next week. We can only hope.
So it’s time for the news but if you would like to spread the love and add a colleague or acquaintance to this email list then just let me know. On the other hand, you could just forward it to them & suggest that they hit the ‘subscribe’ button at the bottom and then, via the miracles of modern science, it will bung them on the list.
Pub, Restaurant & Drinks Producer News:
• Miller Coors reports 2015 numbers, says Q4 underlying net income fell by 10.2%. Total net income for year was $1.328bn
• Miller Coors net income unchanged on last year on reduced sales. Says reduction was ‘driven by lower volume and increased marketing and information technology investment, partially offset by lower cost of goods sold, net pricing growth and positive sales mix.’
• Miller Coors CEO Gavin Hattersley reports ‘we began to drive substantial improvements to our business in the latter half of 2015 that were necessary to create the foundation for growth we aim to achieve in the years ahead.’ He says ‘additionally, there were a number of positives in the fourth quarter as our net revenue per barrel again increased, and we invested significantly more in our brands, which resulted in our flagship brands taking further share in the Premium Light segment, while a number of our Above Premium brands also continued their growth.’
• The Department for Transport has said that there are no plans to lower the drink-drive limit in England & Wales. Transport minister Andrew Jones said ‘the government believes rigorous enforcement and serious penalties for drink-drivers are a more effective deterrent than changing the drink-driving limit.’ He added ‘Britain continues to have some of the safest roads in the world because we crack down on those who break the law.’
• McDonald’s UK boss Paul Pomroy has confirmed that the company has no immediate plans to introduce alcohol to its sales mix
• Pepsi reports Q4 & FY numbers. Says it has hit or exceeded all of its 2015 targets. Organic revenue growth of 4% in Q4, 5% in full year
• Pepsi Q4 revenues down 7% (on translation of currencies) but margin up by 185bps. EPS in Q4 +35% to 117c.
• Pepsi Chairman & CEO Indra Nooyi reports ‘we are happy to report that we met or exceeded every financial goal we set for 2015, demonstrating consistent performance in the face of volatile macros.’ She continues ‘our portfolio has been strategically designed to weather the current macroeconomic challenges’ and says ‘while facing the challenges of a choppy macro environment, we continued to make thoughtful investments in our future.’
• Pepsi. Outlook for 2016. CEO Nooyi says ‘we expect solid financial performance despite expected continued macroeconomic challenges’. She adds that certain key developing and emerging markets may be particularly tough. She says ‘returning cash to shareholders remains a top priority’ and says ‘we expect to return approximately $7 billion to shareholders through a combination of dividends and share repurchases.’
• Matchpint has said that it partnered with Sky Sports ‘to deliver the biggest Super Bowl in history for the UK on-trade’. Matchpint says it has ‘committed to provide even more support to the NFL’s 2016 campaign. With the NFL staging three International Series games in London Wembley later this year, popularity in the sport is due to increase to record numbers in the UK.’
• CAMRA has pointed out that a fifth of all pubs have closed in the last decade. The UK now has around 52,750 pubs
• Stay In A Pub reports that it is ‘getting behind English Tourism Week with a menu of promotional ideas for its member pubs’.
• WSTA has called for a 2% cut in alcohol duty in the March Budget
• Millennium & Copthorne Hotels has reported that it will take a charge of ‘approximately £43m’ for asset impairment in FY15. The group says ‘the final figures will be included in M&C’s full year results, which will be released on 19 February 2016.’ M&C says ‘the net charge includes £76m of impairment losses relating primarily to four of M&C’s properties located in the operating segments of New York, Rest of Europe and Rest of Asia; offset by net revaluation gains of approximately £33m on M&C’s investment properties.’ M&C adds ‘performance of those assets, especially the four hotels referred to above, that are to be impaired is being closely monitored. With regard to such properties, management is considering appropriate strategies to further control costs and increase revenue, including exploring additional sales
• STR reports US hotel industry strong last week (to 6 Feb). Says occupancy down 1.9% but daily rate +5.2% and REVPAR up 3.3%
• Hoseasons has reported its best-ever January UK bookings with sales up 15% on the same period last year.
• Heathrow has recorded its best-ever January for flights. Some 5.5m passengers passed through the airport last year. Particularly rapid growth was seen to destinations such as Mexico (21%), China (16%), Turkey (5.3%) and the Middle East (4%). CEO John Holland-Kaye reports ‘with record passenger numbers and strong cargo volumes – it’s been a great start to 2016 for the nation’s largest port, Heathrow.’ He adds ‘with expansion, we’ll open up 40 new trading links which will carry more British exports to the fastest growing markets in the world.’
• Manchester Airports Group’s 4 sites have had a strong start to the year. Manchester itself saw 1.4m passengers pass through in January
• UKinbound has surveyed its members and found that as many as 82% would like the UK to remain within the EU
• Twitter shares hit an all-time low yesterday on the back of disappointing usage numbers. The shares have fallen by more than 50% since July. The group told investors that Q4 was sluggish but that active usage in January “has bounced back to Q3 levels.”
Finance & Markets:
• Christine Lagarde is to be unopposed in her run for a second term as boss at the International Monetary Fund
• World markets: UK down yesterday, Europe also lower. US markets down later in the day & Far East down in Fri trade
• Oil price bouncing a bit from recent lows. Now trading at around $31.70 per barrel.
Retail Roundup from Nick Bubb:
SuperGroup: It was announced yesterday afternoon that Julian Dunkerton, one of the company’s founders and now its Product & Brand Director, intends to sell c4.0m shares in the company, “due to personal circumstances” (widely thought to be a divorce settlement), via an accelerated bookbuild placing with institutional investors. The placing represents c4.9% of the issued share capital of SuperGroup, leaving him with a still chunky 22.1m shares in the company (27.2% of the equity). Follow the bear/bull?
Ocado: Talking of bears and bulls, the shorts have had things much their own way of late on Ocado, given the delay in landing the much-vaunted Overseas licensing deal, but the Ocado fan club isn’t dead and this morning one of its long-term backers, the giant fund management group Capital, has announced that it has bought another c3m shares, taking its total holding to just over 10% (10.3% to be precise). Follow the bull or the bear?
Today’s Press and News: The slump in the stockmarket continues to generate lots of scary headlines, with the front page of the FT screaming “Day of turmoil as negative rates strike fear into global markets”. In Retailing terms, the main focus, apart from the Julian Dunkerton share sale in SuperGroup (see above) is on the news that Sainsbury’s has announced that it will end multi-buy and “buy-one-get-one free” promotions and that M&S has cleared its pension deficit.
BDO High Street Sales Tracker: In contrast to John Lewis, the weekly High Street sales index of medium-sized Non-Food chains assembled by the accountants BDO paints a rather uninspiring picture today of underlying Fashion store trading momentum last week. Overall Fashion store LFL sales were down by 3.7% on last year in w/e Feb 7th, as discounting dried up at last and Total store LFL sales were down by 2.8% (including some Lifestyle and Homewares retailers), whilst overall Non-Store/Online sales were up by only c14%.
Trade Press (1):
Trade Press (2):
News Flow Next Week: The Hammerson finals are on Monday, then the Darty Q3 and the Asda Wal-Mart Q4 results are on Thursday, with the ONS Retail Sales figures for January coming out on Friday. Nick Bubb – email@example.com
Thomas Cook – Q1 Conference Call:
Group Reports Q1 Numbers:
Thomas Cook has this morning reported Q1 numbers for the quarter to end-March. The group then hosted a conference call for analysts and our comments are set out below:
Overall, pleased with trading. The flexible business model has worked. Has held up well. UK & N Europe good. Around 50% of UK product is differentiated. Less so in Continental Business where consumer confidence has declined.
Summer 2016 started well but Paris & Istanbul caused problems. There were some cancellations and shifts of venue. At this stage, TCG focussed on margin. There has recently been some sign of recovery.
In an uncertain environment, packaged holidays offer a level of support that is being welcomed by holidaymakers. Previous guidance remains in place, provided the recovery in confidence and bookings that has been noted recently continues.
Can you close the margin gap with TUI? Yes. In Thomas Cook, the group has one of the best brands in the UK, even in Europe. The UK product is now very good.
Group could see Spain filling up first with a spill-over into other markets such as Greece, Portugal & Bulgaria. Turkey too.
General re revenues:
The bulk of lower oil prices is being passed through to customers. This is weighing on revenues to the tune of 1.5% to 2%.
Pricing in 2017, will this increase in Spain? Group says no, because Turkey may get back to normal & it wouldn’t serve the hoteliers well to be greedy. Prices are up 3% at the moment. This is ‘reasonable’.
Strong Sterling has helped? Yes & group sees this as ongoing. Packages are hedged. Spending in resort may cost a little more in Sterling terms. Cheaper petrol is feeding through to consumers’ pockets.
Prices are going up in ‘safer’ destinations. These pricing trends are ‘reasonable’ in the western Med. Turkey, on the other hand, is becoming very competitive. He says Turkey is currently the best product in terms of pricing.
Canaries. Group is in a ‘far, far better position’ now than it was 3yrs or 4yrs ago. It has better stock in the Canaries & had already shifted some capacity from Egypt.
Group took the decision on Tunisia & Sharm relatively early. Took out 1.2m seats from Turkey (down 29%, c800k), Tunisia (down 100%, c200k seats) & Egypt (down 50%, 200k seats). Total capacity is down 3% or so. About half of this is re-routed to Spain. The rest to Greece, Bulgaria, Portugal. This was achieved at little cost but required the group to move early & work hard.
The structural shift has effectively been net-neutral. There were plenty of beds that were not contracted but were taken on option. These were given back. All the hotels that it has in Turkey are franchised. Group will recover its deposits. TCG is still a big customer, it is still sending 2.2m people to Turkey.
Turkey is around 4% behind in terms of bookings – though this is after having reduced capacity. Group remains flexible.
This is tougher. Is that structural or cyclical? Customers have cut back on spending. TCG is focussing on margin. Also direct distribution, web site, etc.
The weakness is not just re Turkey, it’s wider than that.
Nature of the ‘recovery’ you are seeing:
Group is seeing better bookings. It sadly has experience of terrorism & natural disasters & the recovery it has seen in the past is being repeated.
Langton Comment: Thomas Cook’s shares have had a torrid time of it.
The group flirted with death in 2012. It then righted its balance sheet and its shares moved up from sub-20p to a high of a shade under 190p.
They have since halved on the back of the general market sell-off, terrorist disruption and the fear that travel patterns may take some time to return to normal.
Thomas Cook has today reassured that, though it needs the recovery that it is currently seeing to persist in order to hit forecast numbers, it has seen such crises before and believes that bookings will normalise.
In addition, the group has shifted capacity.
This has not been achieved without great effort but, as the group moved quickly, it has been at minimal marginal cost.
Margins are therefore being protected and, as bookings normalise, the group should deliver on estimates.
Consensus numbers have the group trading on a current year PER of around 8x earnings. This is rather lower than one would expect for a company whose recovery is not complete. The group today said that it believes it can hit TUI-style margins over the medium term and, as leisure travel is a premium-to-GDP industry, we believe that Thomas Cook’s shares offer good value.
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:
Domino’s Pizza Poland:
• Updates on strong trading.
• Still a minnow but this one could be going places.
• If you’d like a chat through, just let us know.
Enterprise Inns Q1 (19wk) update:
• Shares up a little on a relatively reassuring update.
• However, they had fallen on debt fears and, one would surmise, the lack of a worrying reference to refinancing discussions is maybe the source of this morning’s relief.
• Shares, for the record, trade at less than 4x this year’s EPS.
Interest rate rises:
• 5wks ago, the market was convinced there would be four rate rises in the US during calendar 2016
• Now it is convinced there will be none.
• Indeed there was some talk that Ms Janet Yellen, who is still speaking on Capitol Hill, may float the idea of a rate cut.
• But that hasn’t happened to date. A retreat from December’s rise at this stage would threaten the Fed’s (and Ms Yellen’s) credibility etc.
• Rate rises in the UK? Not until Q1, perhaps Q2 next year say observers.
Random information, hopefully not all of it useless:
• US$ weakness continues. See comments on the role of the US$ as a reserve currency (and what might happen if this ceases to be the case)
• Commodities. Gold still strong. Soft commodities weak. Soy and other inputs perhaps particularly so.
• Rio cuts its dividend; shares drop. Thomas Cook reassures on trading; shares drop. Whitbread & MAB say nothing today on trading; shares drop. Bit of a trend developing here, you think?