Langton Capital – 2016-03-17 – Feb Tracker, Budget, commodity prices & other:
A Day in the Life:
Haven’t you ever thought that, when you’re looking for lost car keys, they must be sitting there somewhere just laughing at you?
Because they haven’t transmogrified into dust and blown away, have they?
They have to be occupying some part of the time-space continuum but, as you’re checking behind cushions, under the TV remote, the newspaper and even in the dog’s bowl, they’re rarely where you first look meaning that someone or something, perhaps a dog, has moved them in order to glean some sort of satisfaction from watching you flap around like a headless chicken as the minutes tick past.
Perhaps I should invest in a car-key-finder-whistle? See a few here. But that would just be another article where the batteries have run out when you most need them and who needs that? On to the news:
Pub, Restaurant & Drinks Producer News:
• Feb Tracker. LfL sales flat at 0.0% across country. London was a shade better at +0.9% with provinces down 0.3%.
• Tracker. Says ‘the numbers will be a disappointment for the sector’. These come ‘on the back of a bright start to the year, with January like-for-likes up 1.9%’.
• Tracker. Says numbers ‘reflect a growing sense in the market that 2016 will be a tougher year than last’.
• Tracker: Total sales up 3.2% showing scale of new openings. Says this is ‘reflecting the continuing impact of new openings and investment in sites, particularly among restaurant groups outside of London.’
• Tracker: Peach’s Peter Martin says ‘we are also seeing the rate of restaurant openings slow this year, as the market perhaps becomes a little more cautious.’
• Tracker: Casual diners outperform wider pub and bar market. LfL sales up 1.6% vs down 0.8% for managed pubs.
• Tracker: Says ‘CGA Peach Business Leaders survey, carried out among 260 senior executives in January, shows confidence about the market still high, with 75% either optimistic or very optimistic. However, that is down on the 93% recorded this time last year.’
• Tracker. Some putting a bright face on data with Trevor Watson, executive director, valuations, at Davis Coffer Lyons, saying ‘the market continues to show ‘steady as she goes’ progress in terms of overall sales, with like for like figures being pegged back by the rate of new openings.’
• Site numbers up, signs of saturation? Trevor Watson says ‘in spite of insatiable operator demand for sites, the rate of new openings does appear to be slowing slightly, which is a trend we expect to see continue for much of 2016. Although consumer confidence is steady, we expect to see some business investment decisions held back until after the referendum which could lead to increased corporate activity in Q3 and Q4 of 2016.’
• On back of RTN caution & lower rate of JDW new openings, Tracker says ‘although disappointing, it comes as no real surprise that the surge in supply and convergence across eating and drinking-out formats is now starting to slow growth and put downward pressure on like-for-like sales. Competition among operators is set to intensify and the winners will be those who can best balance site expansion with innovative menu development and competitive pricing.’
• Fulham Shore announces chairman David Page has sold 4m shares to another existing (unnamed) shareholder. Mr Page still owns around 84m shares (14.76%) in the company.
• Jamie Oliver welcomes sugar tax, says government has been brave, says ‘we did it! A sugar levy on sugary sweetened drinks’
• Italian Job fund raising on Crowdcube, looks to raise £350k for 22.2% in move to open second pub
• Carlsberg shares fell by around 3.2% yesterday as the group unveiled new strategy to regain momentum.
• Carlsberg to stay in Russia despite challenges in that geography. CEO Cees ‘t Hart says ‘we want to transform our business in Russia, and we understand what is required to make this happen.’
• Move to ban use of ecigs in public places in Wales defeated. Cancer charities had said it helps smokers quit the weed
• Research from Vianet and Cask Marque shows pub operators may be missing out on some £333m of profit on current draught beer sales. The Beer Quality Report 2016 indicates that beer quality issues may cost individual pubs £6,416 each, every year. Cask Marque research shows than on inspection only 71% of beer lines are perfectly clean, while Vianet finds that one in three beers sold to consumers is via an unclean beer line.
• Handley Amos has stepped down as managing director of Neapolitan pizza Rossopomodoro after four years of leading the 10-stong chain, writes M&C. The group’s director of operations, Daniele Di Martino, has been promoted to replace Amos.
• Deltic picked up three awards at the recent Publican Awards, including best pub operations team and responsible retailer of the year. Greene King CEO Rooney Anand was crowned business leader of the year and his pub group was named the best large managed company, while Shepherd Neame’s Jonathon Neame claimed the outstanding industry contribution title.
• Visits to pubs, bars, and restaurants fell over the Christmas period but spending increased, with 2.9% growth year on year in terms of value according to CGA Strategy. Christmas sales were up by 3.7%, although visits were down by 9% over the period as a whole.
• The ALMR has welcomed steps to reduce business rates for businesses but believes more meaningful action must be taken for licensed hospitality. Chief Executive Kate Nicholls cautioned: ‘Extension of Small Business Rate relief is a welcome first step in reducing rates burdens for businesses, but more needs to be done to address a system that currently sees pubs and bars paying 15 pence per pint in rates compared to about 1 penny per pint in supermarkets. Changes to the administration of rates have been a long time coming, and the ALMR has campaigned for a switch to the CPI rating, but we are still looking for the ‘once in a lifetime’, root and branch reform of business rates that continue to hamstring many businesses.’
• Meanwhile the BBPA has credited the government for its latest beer freeze, which, it notes, means beer duty is now 17% lower than it would have been under the escalator policy. Brigid Simmonds commented: ‘To achieve three cuts and a freeze from the Chancellor over four Budgets, shows a real commitment and concern for both brewing, an important manufacturing industry, and our nation’s pubs. Beer is already 20p cheaper in pubs than it would have been under the escalator and the industry has the confidence to invest. Also, around 75 per cent of pubs will benefit from the changes to business rates, with a pub on a rateable value of £50,000 saving £625 per year, from April 2017, and pubs with RV of less than £12,000 paying no Business Rates at all. ‘
• The IEA’s Head of Lifestyle Economics, Chris Snowdon, argues that the sugar tax will push up fizzy drink prices and hit the poorest hardest.
• The Budget also saw Chancellor Osborne announce a series of business rate reforms, including raising the rate relief threshold from £6,000 to £15,000. Osborne revealed that future rises would be based on CPI rather than RPI, which will allow for more accurate rates bills for retailers.
• Fuel duty frozen for 6th year in a row. Leaves more cash in consumers’ pockets.
• Cruise passenger numbers hit record highs in UK in 2015 after 2014 slump. Numbers hit 1.78m for the year, +9% on prior year.
• TTG says Spain & Portugal ‘approaching saturation point for summer bookings’. It says ‘with Tunisia off limits and Egypt and Turkey suffering from political problems, the travel industry is facing a capacity crunch.’ This will increase some costs for operators but should lead to a tightening of supply & potentially higher margins overall.
• Low cost German coach operator FlixBus is offering trips from London to Paris for £9. FlixBus will offer free Wi-Fi & extra legroom.
• Travel industry hits out, says Chancellor Osborne has missed an opportunity to reform Air Passenger Duty in the Budget. Flybe CEO Saad Hammad said ‘UK APD is the highest aviation tax in Europe and one of the highest in the world, which penalises disproportionately domestic UK travellers on a per mile basis compared to European short-haul and long-haul.’ He adds ‘it is surely high time the UK Government listened to the needs of regional passengers and took positive steps to reforming or abolishing this tax without further delay. If the Chancellor needs the overall £3 billion levied through APD, then we urge him to raise it more fairly by cutting the charge to Scottish levels at regional airports and establishing a higher levy or ‘congestion charge’ at the congested airports in London such as Heathrow and Gatwick.’
• Uber is rolling out food delivery in the US. Has been operating in LA for some weeks, will launch in San Francisco, Chicago & Houston
Finance & Markets:
• US Fed leaves rates on hold, says moderate US economic growth and “strong job gains” may lead to tightening later this year. Fed says ‘a range of recent indicators, including strong job gains, points to additional strengthening of the labor market. Inflation picked up in recent months.’ It continues to say ‘however, global economic and financial developments continue to pose risks.’
• UK economy to grow more slowly confirms OBR. Aiming for 2.0% this year, down from earlier 2.4% estimate
• Budget should be in surplus by 2019-20 says Chancellor Osborne.
• UK unemployment down to 1.68m in three months to end-Jan, down 28k on prior quarter. Rate now 5.1%.
• UK average earnings rising 2.2% y-o-y as measured up to end-Jan.
• Forward guidance in tatters. Bank of England Governor Carney was going to put rates up when u/e fell below 7%.
• World markets: UK & Europe up yesterday, Wall St also higher. Far East up in Thursday trade
• Oil price rebounds, trading at around $40.70 per barrel.
NOT Just another Budget Report in 60 Seconds:
This is a very selective look, there’s wall-to-wall Budget coverage elsewhere.
• So no duty cut for beer – but no rise, either
• Sugary drinks tax shouldn’t be too much of an issue
• Manufacturers may tweak recipes
• And there are plenty of alternatives out there. Beer, for example
• Politicians love soundbites.
• And simple, easily understandable ideas
• So fat kids = bad, fizzy drinks the culprit. Simples.
• Well, yes, but what about baked beans, tomato sauce and the likes let alone the obvious non-liquid targets, chocolate, cakes etc.?
• However, we’re realists and note that the food manufacturers have swerved the sugar tax
• But Premier Foods (Mr Kipling, Cadbury cakes) is addressing the issue nonetheless
• PFD is pushing portion control rather than seeking to produce bland-tasting mush
• This we applaud as it does, at least, put some of the responsibility back on the consumer
• It’s a question, ultimately, of calories-in less calories-out
• Elsewhere, the group’s largest single input cost, milk, continues to fall in price
• It’s down by around a third from its end-2013 high
• An earlier (and statistically cooler) Easter should be good for sales
• The group updates with full year numbers on 16 May
Retail Roundup from Nick Bubb:
Today’s Budget Press: With the Budget “sugar tax” getting all the attention (which was no doubt exactly the intention…) there is saturation coverage in the papers of the Budget. Apart from the Sun front page headline “Fizzy Rascal” (!) and the Daily Mail’s front page “George’s Awesome Gamble”, the FT front page headline sets the tone: “Osborne seeks to sweeten bleak outlook in safety-first Budget”, although the Times and Telegraph both run with “Osborne sugars the pill” and CityAM goes with “Osborne kicks the can down the road”. We preferred the Guardian headline “Osborne’s credibility gap” and the FT comment piece headlined “Chancellor George Osborne is in traps of his own devising”.
Clash Watch: Having noted that the Dixons Carphone analysts trip to Newark yesterday clashed with the 2nd day of Cheltenham, the Budget and the start of the Retail Week Live Conference, we should also flag that MIPIM, the big get-together for retail property professionals, is taking place over 4 days at the Palais des Festivals in sunny Cannes in the South of France this week…and that just as the retail glitterati get ready this evening for the famous “Retail Week Awards” (aka the Retail Oscars) tonight, at the Grosvenor Hotel in the West End, Marks & Spencer is also holding its “Spirit of Summer Food Press Show” at the uber-trendy Ace Hotel in Shoreditch…Nick Bubb – firstname.lastname@example.org
This was produced for distribution yesterday 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:
• Group still buying back shares.
• Bought back another 80k at 697p on Tuesday.
• Takes recent total to 1.37m shares for £9m (av. 653p per share).
• Interestingly JDW has therefore retired around 1.2% of its equity in the latest round of buybacks starting in Jan this year
• Amazingly, the group has not far off halved the number of shares in issue since it started buying them back in serious volume in 2004
• Following both recent buy-backs and small issues of shares to satisfy option entitlements, there are 117.9m shares in issue
• When the group gets to 112.5m shares or less, surely the co should throw some sort of party?
• Because by then it will have used shareholders’ money to buy back half of the shares in issue – hopefully to the benefit of those shareholders that have hung on
• Big broker downgrade alert.
• Says sees threats from weaker UK demand, pricing pressure as airline capacity goes up and cost pressures from resort hotel owners
• All true – and big brokers do have the power to move prices (at least in the short term) – but we would suggest that 1) supply & demand balance is perhaps the key issue in determining profitability and that 2) TCG’s China JV with Fosun has the potential to transform the company over time
• Of course companies that focus on the long-view can trip over if they ignore short term problems
• But we would suggest that, when Chinese visitor numbers across Europe have risen to much higher levels in a decade’s time, we may be looking back and telling ourselves that it was obvious where we should have been putting our money
COMMODITIES, COSTS ETC.
• Oil price kinda stable, gold price kinda not.
• Oil sitting at around the $39 level. Gold now costing around $1,232 per ounce having failed (again) to break through the c$1,280 level.
• Gold / Oil ratio (how many barrels of oil it takes to buy an ounce of gold) now sitting around 31.4 versus 32.9 this time yesterday and 34.5 on 4 March.
EVOLUTION – CHANGE REMAINS THE ONLY CONSTANT:
• Today we report (see earlier email) that coffee shops and grab-and-go food outlets are still booming.
• Also reported that night club charges have dropped out of the CPI calculation due to their diminished importance.
• And earlier in the week, report that young people are more likely to grab a coffee than to grab a beer.
• And it’s not, we would suggest, just about the money. There may be sectoral shifts going on here.
• So lesson may be to focus on coffee, soft drinks, free WIFI and contactless payment systems. Less on glitter-balls, smoking solutions and on producing the best pint of mild for under a quid.
RANDOM INFORMATION, HOPEFULLY NOT ALL OF IT USELESS:
• Hoping for another 1p off the price of a pint later today.
• Fed Open Markets’ Committee meeting yesterday and today. Will announce 6pm our time. Live odds on no change = 98%. Betting on June is 57% in favour of a rate rise at that time.
• Sainsbury Homebase put-up-or-shut-up is this Friday. New terms may be pending.