Langton Capital – 2016-03-14 – Daily Wrap: JDW/RTN, oil prices, costs & 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:
JD WETHERSPOON & RESTAURANT GROUP:
• On 25 Feb 2014 we commented on RTN concluding ‘RTN is a good company but [one should] consider switching to JD Wetherspoon’.
• We said (back in early-2014) ‘…and that’s wonderful [good cash flow, predictable new openings etc.] but you could say the same thing about Wetherspoon’
• We added ‘JDW has twice as many units as does RTN. They tend to be larger in terms of revenue and group sales at JDW (caledarised for 2013) were £1.34bn against the £0.58bn for that year just reported by RTN.’
• We said ‘margins are admittedly lower but JDW is, if anything, a more widely recognised brand. It has a functioning estate and growth prospects in the nation’s city centres, in its suburbs, on the nation’s motorways and now in Ireland and may, at these relative prices, offer a better option to would be shareholders than does Restaurant Group.’
• This has proved to be the case with JDW outperforming RTN by more than 60% in the year to date alone
JD WETHERSPOON & RESTAURANT GROUP CONTINUED:
• And why, we would ask, isn’t RTN buying its own shares back?
• JDW is.
• Does RTN believe that new units represent a better use of capital?
• Presumably so but has nothing changed as a result of RTN’s shares losing 45% of their value this year?
• One would imagine that, on the margin, the price drop would mean that RTN’s shares represented some sort of opportunity and, as we continue to believe that actions speak louder than words, we will await developments.
• Does the fact that the IEA says there is growing evidence that oil prices are stabilising actually mean anything?
• Is it weather forecasting by looking out of the window and saying it’s raining?
• And, even if the comments do mean anything, are they likely to be correct or could they be a contra indicator?
• Well there are billions of dollars bet daily on the veracity or otherwise of the IEA’s comments and far be it from us to second-guess the various pointy-heads involved in such predictions
• But what we would suggest is that cycles tend to be cycles because they are, well, cyclical.
• On the supply side, low prices lead to lower production which, in turn, leads to higher prices.
• The reverse is true with high prices and, as regards demand, higher demand at low prices will lead to a firming of that price and, once again, the opposite will happen when prices are high.
• So much, so obvious but, with US rig counts at multi-year lows and the global oil majors shelving projects and mothballing some existing facilities, oil supply could be an issue in due course.
• And that leaves the market second-guessing and third-guessing what the market will do tomorrow. Was forever thus.
• Another contra-indicator, of course, could be the suggestion that the Chancellor is about to slap extra taxes on fuel knowing that the underlying price is low. If that doesn’t signal the bottom in terms of price, then we’re not sure what does.
HOLIDAY COSTS RISE AS EURO STRENGTHENS:
• Talking about contra-indicators, it was always perhaps likely that M Draghi’s long-anticipated (and expected-Euro-weakening) comments last week would coincide with the low point for the common currency
• Because the Euro has done little but strengthen over the last few trading sessions
• And, as this has come on top of a preceding period of Sterling weakness, it does mean that a pound now buys you around 8% less in terms of Euros than it did 6mths ago.
• This will impact holiday costs for many Britons.
• Certainly ‘brochure’ prices (admittedly there aren’t many brochures actually around any more) are fixed for one, maybe two seasons in advance – but 1) the cost changes will feed through in time and 2) the impact for the holidaymaker when he/she hits the resort will be immediate.
• This latter point is important as it means that holidaymakers may have less spending money left when they return to the UK than would otherwise have been the case.
• Pubs, restaurants and the like may feel the impact here later in the year.
Random information, hopefully not all of it useless:
• World equity markets strong, US now trading above its 20dy moving average for the first time this year
• Oil gold index. Takes 31.6 barrels of oil to buy an ounce of gold this morning. It took ‘only’ 30.6 last Thursday. Ratio was as high as 34.5 on 4 March. Longer term average said to be around 16-18.
We’re so 21st Century, this morning’s Tweets (diff. font size denotes importance):
1. JDW Fri bought another 205k of its own shares at price of 697p. Has now bought back 1.24m (average 649p) since H1 numbers
2. Bistro chain Cote set to be sold to BC Partners in a £250m deal <2yrs after CBPE Capital acquired its controlling stake per Sky News
3. Students are more likely to go out for a coffee on campus than a boozy night out these days, according to a survey of 2,000.
4. Fevertree FY numbes, revenues £59.3m (vs £34.7m), EBITDA +82% at £18.2m, EPS 11.5p vs 1.5p. Dividend 3.08p vs 0.3p.
a. Fevertree FY. Says has made ‘significant distribution gains in both the On & Off-Trade in the UK’ and achieved new listings with M&S.
5. ONS figures suggest that just 26% of hospitality businesses employ staff on zero-hours contracts, down from the 53% reported in 2014.
6. The US hotel industry observed a slowdown in RevPAR growth from 8% in 2014 to 6.3%, according to STR and Oxford Economics data.
7. At least 34 people were killed and 125 injured in an attack in Ankara yesterday, the second major attack in the city in less than a month
8. Five-a-side soccer centre operator Goals has reported LfL sales down 4.9% to £33m and group EBITDA down c20% to £11.8m
9. George Osborne has announced that further public spending cuts will be forthcoming in this week’s Budget
10. The UK’s trade deficit narrowed from £3.7bn to £3.5bn in January according to ONS stats
11. The British Chambers of Commerce has downgraded its growth forecast for the UK economy due to ‘global headwinds and uncertainty’