Langton Capital – 2016-03-17 – Daily Wrap: Current trading, over-capacity, LfL sales, sugar taxes, holiday companies & 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:
CURRENT TRADING, OVERCAPACITY ETC.:
• Tracker: Valentine’s fell on a Sunday. Sunday’s tend to be more of a lunchtime market (work on Monday, etc.). Valentine’s Day also coincided with a number of big football & rugby fixtures.
• Tracker: The weather, not mentioned, wasn’t a big deal either way.
• Both WTB & RTN seem to have flagged up that LfL sales increases are (and will be) harder to come by
• This morning’s Tracker (see earlier email) seems to be saying the same thing
• LfL sales in Feb (per the Tracker) were 0.0% with total sales growth of 3.2%
• That at least makes the maths easy in that 3.2% of new capacity (at least in terms of sales value) must have gone on in the last year
• And that compares with GDP growth of around 2%
• Certainly there may be a secular move towards eating (if not drinking) out
• In addition, the majors may be taking share from independents
• But new entrants, Franco Manca, for example, will also be taking share from the branded incumbents
WHAT THIS MEANS:
• There are clearly a lot of moving parts.
• But one take-away from the above could be that a) we have nearly enough restaurants now open to keep us going and that b) growth will come therefore from taking market share rather than necessarily from growing the market
• Investing legend Peter Lynch (Magellan Fund, Fidelity, took it in AUM terms from around $50m to c$10bn) said in the 80s and 90s that, if you spotted a good restaurant concept in Florida or Washington State, there were good reasons to suppose that it could grow at 20% plus per annum for 20+ years whilst it rolled out across the US
• And longer if it cracked the overseas market
• But, and it’s a big but, the UK is a lot smaller than the US
• Perhaps 10 is the new 20?
• Interest-deductibility of debt interest. It looks as though this will not impact property-owning pub companies. And nor should it, rent is allowable and so too should interest costs (in this context at least).
• The restriction on the use of some losses brought forward could have an impact. This is not commonly factored into share prices in the first place, however.
COMMODITY & INPUT PRICES:
• Oil price bounce yesterday. Now trading above $41 again ($41.25 at time of writing) after dipping to little over $38 on Tuesday
• Gold price also firmer at around $1,265 per ounce – but rise less in percentage terms than that in oil. Gold Oil ratio now at a month low of 30.7.
• Red meat prices weak. Some commodities moving up a bit on the back of a weak US$ but feeder cattle prices down some 26% over the last 12mths.
RANDOM INFORMATION, HOPEFULLY NOT ALL OF IT USELESS:
• RTN shares bouncing today for the first day in a while. Shares now around 396p. Bounce of 3% on the day at time of writing but shares down by 40% plus over the last three months or so. See comments on capacity above but, even with that in mind, it would not be too surprising to see PE bid stories emerge at some point.
• Travel stocks weak yesterday on big-broker-downgrade yesterday. Demand down? Perhaps but, with Tunisia and Egypt shut and Turkey running 40% down, the areas to which holidaymakers are attracted will be selling out and margins could be good.
• Circa 80% of total FTSE100 stock revenues come from outside the UK.
• Sugar tax, will it make a difference. Well, perhaps not much. But that may not excuse doing nothing. Strange that it doesn’t extend to chocolate, cakes etc. Also stealth products such as tomato sauce, baked beans etc.
• Bookies up yesterday on the absence of (further) bad news in the Budget.
THIS MORNING’S TWEETS:
1. Feb Tracker. LfL sales flat at 0.0% across country. London was a shade better at +0.9% with provinces down 0.3%.
a. Tracker. Says ‘the numbers will be a disappointment for the sector’. These come ‘on the back of a bright start to the year,
b. Tracker. Says numbers ‘reflect a growing sense in the market that 2016 will be a tougher year than last’.
c. Tracker: Total sales up 3.2% showing scale of new openings. Says this is ‘reflecting the continuing impact of new openings’
d. Tracker: Says ‘We are also seeing the rate of restaurant openings slow this year, as the market perhaps becomes a little more cautious.’
e. Tracker: Casual diners outperform wider pub and bar market. LfL sales up 1.6% vs down 0.8% for managed pubs.
f. Site saturation? Tracker – ‘the rate of new openings does appear to be slowing slightly, which is a trend we expect to see continue’
2. Fulham Shore announces chairman David Page has sold 4m shares to another existing (unnamed) shareholder
3. Jamie Oliver welcomes sugar tax, says government has been brave, says ‘we did it! A sugar levy on sugary sweetened drinks’
4. Carlsberg shares fell by around 3.2% yesterday as the group unveiled new strategy to regain momentum.
5. Move to ban use of e-cigs in public places in Wales defeated. Cancer charities had said it helps smokers quit the weed
6. Visits to pubs, bars, and restaurants fell over the Christmas period but spending increased, with 2.9% growth year on year
7. IEA’s Head of Lifestyle Economics, Chris Snowdon, argues sugar tax will push up fizzy drink prices and hit the poorest hardest.
a. The Budget also saw Chancellor Osborne announce a series of business rate reforms, including raising the rate relief threshold
b. Fuel duty frozen for 6th year in a row. Leaves more cash in consumers’ pockets.
8. Cruise passenger numbers hit record highs in UK in 2015 after 2014 slump. Numbers hit 1.78m for the year, +9% on prior year.
9. TTG says Spain & Portugal ‘approaching saturation point for summer bookings’.
10. Low cost German coach operator FlixBus is offering trips from London to Paris for £9. FlixBus will offer free Wi-Fi & extra legroom
11. Travel industry hits out, says Chancellor Osborne has missed an opportunity to reform Air Passenger Duty in the Budget
12. Uber is rolling out food delivery in the US. Has been operating in LA for some weeks, will launch in San Francisco, Chicago & Houston
13. US Fed leaves rates on hold, says moderate US economic growth and “strong job gains” may lead to tightening later this year
a. UK economy to grow more slowly confirms OBR. Aiming for 2.0% this year, down from earlier 2.4% estimate
b. UK unemployment down to 1.68m in three months to end-Jan, down 28k on prior quarter. Rate now 5.1%.
c. Forward guidance in tatters. Bank of England Governor Carney was going to put rates up when u/e fell below 7%.