Langton Capital – 2016-03-18 – Daily Wrap: Discounting, Merlin, hotels, currencies & 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:
DISCOUNTING IN THE OFF-TRADE:
• Premium Bottled Beer report suggests that Sainsbury & Waitrose have taken a large number of beer off offer.
• This fits in with SBRY’s avowed intention of cutting offers across the board.
• Prices, margins should edge up a bit, hopefully volumes won’t fall too much.
• Sainsbury doing 500ml premium beers (Old Speckled Hen, Pedigree etc.) for £1.80 per bottle, some at £1.60. They were doing £5 for three bottles pretty much across the board.
• ASDA still doing 4-bottles-for-a-fiver so guess where Langton will be shopping. Inexplicably selling Banks’s Bitter at 90p a bottle or 102p per pint.
MERLIN & A ‘CHEAP’ POUND:
• See also comments on currencies below.
• Merlin has in the past pointed to a strong UK pound, particularly versus the Euro, as a reason as to why London visitor numbers may be a little weaker than expected & thus revenues at its London attractions were consequently under a little pressure
• But, as the chart below shows, Sterling has weakened vs the Euro by about 8% over the last 6mths suggesting that Euro-denominated visitor numbers may once again be on the rise.
• Indeed we carried the story that ‘a total of 23.6 million tourists visited the UK in 2015, up 7.1% YoY, with much of the growth driven by visitors from EU countries (up 13% to 14.9 million)’ in our earlier email today.
• Merlin updates on Q1 trading at the time of its AGM on 19 May. It would lack a certain symmetry if the group did not make some reference to currency movements and their (hopefully) positive impact on visitor numbers.
US HOTEL MARKET SET TO MOVE DOWN:
• STR suggests (see earlier email) that occupancy across US hotels is falling whilst rates are still rising.
• This is currently leading to a small positive for REVPAR.
• However, STR is also flagging up significant increases in capacity, saying that the US pipeline for new hotels is pretty full.
• That would suggest that both occupancy and rate could come under further pressure and, a swift upturn in the economy notwithstanding, REVPARs will fall.
• The UK – particularly London – is in a similar position.
• It’s tempting to think that everything is about us.
• But in the currency market, it isn’t as what’s actually happening is that the US$ is weakening and, as a result, most other currencies look as though they are strengthening.
• This is particularly the case with the Euro and the Yen where markets have become exasperated with negative interest rates & have decided to move the currencies higher no matter what the respective central banks choose to do.
• Sterling, although it doesn’t look it, is perhaps moving sideways.
• US dollar at two-year lows vs Yen. Aussie dollar rising.
COMMODITY & INPUT PRICES:
• Oil price hitting 2016 highs.
• Gold slightly weaker & gold – oil ratio down to 30.5 from 30.7 and from a March high of 34.5 (on 4th of the month)
• Soft commodities under upward pressure (in US$ terms) due to weakness of reference currency). Sugar prices are at recent highs. Price of Sugar #11 is up by 32% over the last 12mths.
RANDOM INFORMATION, HOPEFULLY NOT ALL OF IT USELESS:
• Bank of England held rates yesterday. That is the 84th straight month that it has done so.
• Various economists suggesting that Mr Osborne has a 50:50 chance of hitting his 2020 Budget Surplus targets. Given where we were in 2010, that’s perhaps not half bad.
• Slightly delayed reaction, AG Barr shares down 5.2% yesterday.
• Travel stocks down on oil strength. Top ten losers in FTSE100 & FTSE250 included Easy Jet, Carnival, Intercontinental Hotels, Millennium & Copthorne.
• M&B shares also in the top-10 losers in FTSE250. Shares now looking very weak. Perhaps overdone?
• Despite upset leading to Feb lows, Dow Jones index is now up on the year.
THIS MORNING’S TWEETS:
1. Restaurant Group appoints Mike Tye, ex-CEO of Spirit Pub Co, as NED and Chairman of the Remuneration Committee.
a. RTN. Says ‘in line with best practice, Tony Hughes…will be retiring from the Board following the Company’s AGM on 12 May 2016.’
2. Premium bottled ale. Discounting abating, latest report shows decrease of 21% in the total number of lines on promotion.
a. PBR shows big reduction in number of beers on offer at Waitrose (-36%) and Sainsbury’s (-67%)
3. China Resources Beer, which recently bought out SAB’s joint venture stake in the company, has announced a 14% rise in profit
4. OBR says UK households are on course to spend more than they earned for the rest of the decade
5. The Welsh Assembly has voted against a ban on e-cigarettes in public places.
6. Imbiba-backed Darwin & Wallace has confirmed it will open a site as part of Battersea Power Station’s Phase One development
7. M&C Allegra’s latest tenant track survey points to improving tenant satisfaction in the industry.
8. Wages and living standards are set to fall in the wake of the latest Budget, according to the Institute for Fiscal Studies
9. Kate Andrews of the Institute for Economic Affairs has called sugar taxes ‘incredibly regressive’
a. Some Tory MPs have criticised the sugar tax as nannying, impractical, and an unwarranted interference in people’s lives.
10. March 2016 Markit World Business Survey reports ‘optimism regarding future activity hits survey-record low’
a. Markit. Says ‘US confidence drops markedly’ and adds ‘Eurozone and BRIC area see slight improvements in sentiment’
b. Markit says ‘competitive pressures are expected to limit firms’ ability to hike their own prices over the next 12 months.’
11. A total of 23.6 million tourists visited the UK in 2015, up 7.1% YoY, with much of the growth driven by visitors from EU countries at +13%
12. US hotel industry in week to 12 March saw occupancy down 1.5% but rate +2.6%. REVPAR rose 1.1% per STR
13. UK interest rates have been held at 0.5% by the Bank of England as all nine members of the Monetary Policy Committee voted unanimously
14. Oil price off the top but hit 2016 highs overnight. Now trading at around $41.50 per barrel