Langton Capital – 2016-03-08 – Daily Wrap: Whitbread, London hotels, oil price & 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:
• Shares threatening at the time of writing to fall once again following the group’s trading update on 3 March
• Price now down to around 3680p from 4049p last Wednesday (down 9%).
• Shares hit their high of 5440p in April last year. They are now a third lower than their 12mth high.
• Whitbread’s world hasn’t stopped spinning but, ahead of clarity (for better or worse) at the group’s April FY numbers, there remains a degree of uncertainty
• Both the EPS and, perhaps more importantly, the rating attached to it, remain under review
• The shares could become cheap but, for the moment and with the UK hotel market (despite PwC comments this morning) looking to us at least as though it is past the peak, we remain on the side-lines
• Re Costa, we accept both that 1) the weather impacted Q4 and 2) that LfL sales aren’t the only way to grow revenues – you can open new stores as well
• However, the market seems to have ignored the ‘don’t shoot the messenger’ request
• That may be unfortunate but it is what it is. Short term bounces aside, WTB shares may remain somewhat speculative ahead of its 26 April numbers
• PwC expects REVPAR in London up 1.9% this year and 2.7% next.
• This, to us at least, looks a little ambitious.
• REVPAR could move higher this year – courtesy of rates, occupancy is falling – but the exit rate come Dec could be rather poor
• Suggesting that 2017 may be more of a challenge.
• Recovered overnight to >$40 per barrel. Now moving a little higher still, trading at around $40.60 per barrel. Was last >$40 in Dec last year.
• The US oil rig count has apparently fallen for the 11th straight week
• Pretty material rebound given the <$28 at which it was trading back in mid-February. Price has risen by 45% in three weeks. As this is the single-most important commodity in the world, you may need to read that twice.
Commodities & input prices:
• For gold & gold vs oil, see below.
• The iron price had its best day apparently ever (or for at least as long as traders could remember) yesterday at plus 20%. Yes, 20%.
• Iron is clearly a pretty important input.
• Recent US$ weakness has led to a bump up (slight) in the prices of some soft-commodities.
• One would hardly conclude on the evidence of the above that inflation was in danger or returning – but nor are rising commodity prices consistent with deflation (re the CPI) over time
Gold vs Oil:
• Gold price up again. Showing around $1,275 per ounce.
• Though both commodities are currently rising in price, oil is stronger than gold meaning that the gold/oil ratio is slipping a little – albeit from all-time highs.
• Ratio is now such that it takes 31.4 barrels of oil to buy an ounce of gold. Peak was around 34.5 with the longer term average around half that level.
• Tempting to conclude that, if you were a gold-bug, you’d be dumping the yellow metal to buy oil.
• Aide memoire:
o Gold Oil ratio up = risk off investing
o Gold Oil ratio down = risk on investing
o Ratio stable, both prices rising = political uncertainty
o Ratio stable, both prices falling = ask us again if it ever happens
Random information, hopefully not all of it useless:
• Innovation. M&B introducing stone ovens to cook pizzas. Good idea but what took so long? Standing still is not an option.
• Just Eat shares down on director selling. Directors would not have been permitted to sell earlier but the group, when it reported FY numbers on 1 March, said ‘these results prove the strength of our model, validate our value-enhancing approach to M&A and provide an excellent platform for continued expansion in 2016.’ CEO David Buttress said ‘the global online takeaway market continues to grow as consumers become ever more demanding; wanting more choice and greater convenience. JUST EAT has been at the leading edge of developing and growing the online marketplace for takeaway food delivery as it responds to these changing trends.’ He concluded ‘strong trading momentum has continued into 2016. Investment for growth in areas such as technology, marketing and people will continue and, as a result, the Board expects 2016 revenues of £350 million and
We’re so 21st Century, this morning’s Tweets (diff. font size denotes importance):
1. M&B is fitting stone-baked pizza ovens in all 188 of its Vintage Inns pubs as part of a menu refresh
2. JDW’s Tim Martin has warned against introducing a sugary drinks tax due to ‘pseudo-medical advice concerning food’.
3. BHS has warned that it could collapse owing £1.3bn. Not sure that was meant to happen.
4. PwC reports on European hotel market concludes ‘we expect trading fundamentals to continue to improve’
a. PwC hotels: Says Rome will be best city in 2016 in REVPAR terms (+19.2%) and London will lag (at +1.9%).
b. PwC hotels: Says London occupancy to stay high ‘despite high supply additions and only a marginal increase forecast’.
5. Scottish Passenger Agents’ Association is hoping for a cut in Air Passenger Duty post May elections
6. STR says 2015 was the first year since 2010 in which the European hotel industry passed hotels in the US in YoY RevPAR growth.
7. Eurostar has cancelled and changed services this week as a result of planned strike action in France on 9 March.
8. Paddy Power Betfair FY numbers, says both parties have ‘performed well pre-merger’. See email.
a. PPB FY: Announcement is pre-completion of the merger but some numbers reported as ‘group’.
9. Bank of England has said that it is prepared to inject more liquidity into the UK economy over the EU referendum period
a. Japan recession less steep than feared, economy shrank by annualised 1.1% in Q4 vs earlier estimates of around 1.5%
b. Euro zone finance ministers are to discuss debt relief measures for Greece. Slight feeling of déjà vu
c. Oil price slightly lower this morning but still holding above the psychologically important $40 mark at c$40.25