Langton Capital – 2016-02-23 – Daily Wrap: Menu innovation, hotel cycles, Sterling & 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:
Menu innovation (a.k.a. fancy food:
• We wrote a piece on two-word food descriptions a while ago.
• You know, sun-dried peppers, vine-ripened tomatoes etc. We commented that it was playing to provenance & seemed to be what consumers wanted to hear
• And there’s a place for fancy food and even fancier food and that’s arguably near the top of the cycle
• Because the air is a bit more rarefied up there and it was interesting to hear from EAT yesterday to the effect that it is to introduce a number of new products
• These include Quinoa & Buckwheat Porridge, Breakfast Egg & Avocado, vegan Avocado Sourdough Toast (at £3.49), a Mango & Coconut Chia Pot (£2.09, vegan + dairy-free) and Coconut Water & Fruit Jelly (£2.49, made without gluten).
• There is presumably demand for such products but how much demand, when and in which geographies remains to be seen.
• Sterling down to a 7yr low against the US$ yesterday.
• Down a little against the Euro though not so much. It’s being taken as read by currency dealers that the Euro would be weaker if the UK was no longer in the EU. I feel that if somebody did the differential equations on that three way pull, it wouldn’t quit stack up.
• Nonetheless, the pound is where it is.
• A weaker currency will mean that import prices rise in Sterling terms. That’s not too big a deal with commodity prices as weak as they are but, should it continue – and if commodity prices rose in dollar terms – it could lead to inflation.
• In the short-term, it could cause some problems for manufacturers, for example the brewers, if they seek to pass on price rises to a consumer not now used to paying any more for anything
• A weaker pound will also impact the holiday companies. True, near seasons will be hedged but, ultimately, beds, flights and insurance would all cost more in Sterling terms.
• And to the holidaymaker, the impact of a weaker pound will be immediate. It will be felt as soon as they land at their destination airport and may make them a little less likely to re-book as soon as they land home in the UK
US hotel market past its peak. UK likewise?
• More data from STR suggesting that the US hotel market is past its peak.
• Certainly REVPAR is still rising (a little) – but this is more than 100% courtesy of higher rates.
• Put another way, operators are charging customers more for the same product. This can also be termed ‘gouging’ and, particularly with corporate customers and their buying departments, it can lead to payback further down the line.
• London is the same. See earlier comments for our take on how the hotel market will progress from here.
Random information, hopefully not all of it useless:
• Intercon. Bigger special dividend than expected, shares +4%
• Risk on day yesterday (OIGs, MINSs, FINs outperforming, housebuilders down) and the exact opposite in early trade today.
• Some talk of further ECB stimulus when it meets to discuss policy in March. That won’t help the Euro (except against Sterling) in the short term
We’re so 21st Century, this morning’s Tweets (diff. font size denotes importance):
1. Ruth & Robinson has acquired the Black Cap pub in Camden from Faucet Inns. It will open up in regenerating areas
2. Local Government Association says that fizzy drinks should give their sugar levels in teaspoons, rather than grams
3. Texas Roadhouse reports FY numbers, says revenues +12% in Q4 & +14% for the year as a whole. EPS 32c in Q4 (+23%), 137c for year (+11%).
4. EAT has introduced a number of new products to enhance its menus. It is offering Quinoa & Buckwheat Porridge at £2.29
5. Sysco, the world’s largest catering supplier, has reached a $3.1bn deal to acquire Brakes Group.
6. Intercon. FY: Group reports ‘strong results driven by disciplined execution of our winning strategy’. Underlying revenues +8% at $1.5bn
a. Intercon. FY: Reports underlying operating profit $650m vs $583m, EPS 167c vs 141c & and dividend 85c vs 77c and dividend
7. Hostel operator Beds and Bars will move its headquarters from the UK to Europe if the UK votes to leave Europe
8. The Zika virus is having an effect on travel, with flight bookings to affected areas down by as much as 10% since early February
9. The state of emergency in Tunisia has been extended by another month, and will now run until 22 March
10. UK residents took more than 40 million holidays last year for the first time since 2008, up by 9% to 42m from 38.5m.
11. The pound hit its lowest level against the dollar since March 2009 as Brexit fears pushed the currency down 1.4% to $1.4135.
12. US hotel industry still reporting rising rates but lower occupancy levels. REVPAR still positive
13. Ladbrokes FY numbers, says is making ‘good progress on strategy and FY17 financial objectives’. It saw ‘encouraging H2 customer metrics’
a. LAD FY: Revenues +3.2% at £1.2bn, PBT £52.5m (down 46.4%), EPS 9.1p (down 9.9%). Total dividend 3.0p (down 66.3%).
b. LAD FY: Says ‘digital net revenue growth at 12.9% with Q4 up 31.4% ‘as marketing & product investment delivered strong growth’.
c. LAD FY: Says ‘our 2016 expectations [are] unchanged’. Will undertake ‘sustained product & marketing investment to drive customer metrics’
14. International Energy Agency warns consumers not to become accustomed to cheap oil. It forecasts recovery next year, price spike by 2021