Langton Capital – 2016-03-21 – Daily Wrap: DPP, sugar, JDW, 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:
DOMINO’S PIZZA POLAND:
• Spotting a success story is always something of a challenge because, like calling a bubble, it’s most easily done with hindsight and, as we’re meant to be in the prediction game, that’s not particularly useful.
• However, we would suggest that DPP is getting things right.
• At the group level, the company is still losing money but, as it rolls out its units, this should change.
• Indeed the company is currently profitable at the store level and, as it says it will open a ‘substantial’ number of new units this year, it should only be a matter of time before the stores’ profits feed through to the bottom line.
• Chairman Nick Donaldson writes ‘your board believes that the strong performance of our stores, existing and new, plus the contribution of the commissary will continue to build over the coming year and that 2016 will be another important year for this business.’
• So Mr Osborne seems to be in the firing line.
• And this may be centring on relations with IDS and the left (and strangely enough the Brexit parts) of his party, but his suggestions on sugar taxes have also come in for some criticism.
• First, the industry seems to be considering launching a legal challenge. This has apparently already been successful in Finland and Denmark and, after the Scottish Assembly failed to make minimum price legislation for alcohol stick north of the border, this may cause problems.
• And second, and rather understandably, the soft drinks industry is saying that it is unfair that sugar is only being attacked in fizzy drinks and not in fruit drinks, milk-based drinks or in processed food.
• All of which suggests that the game is not over and that, however laudable may be the desire to reduce the obesity problem across our country, this may not be the easiest way to go about it.
JD WETHERSPOON’S SHARE BUY BACK:
• JDW has been putting its money where its mouth is.
• Today it announces that it bought back another 85k of its own shares on Friday, these at 700p.
• The group has now this year bought 1.46m shares for cancellation for £9.6m, an average of 656p per share.
• See our comments last week for the scale of JDW’s buyback over the last decade or so.
• Sterling bouncing vs both Euro & US$.
• But more so against the US$ as this is currently a story about US$ weakness rather than Sterling strength
• This has implications for commodity prices which, as they are priced in US$s, tend to go up in price (at least in terms of the US$) when the dollar falls
• Most heavy users of foreign currency and commodities, for example the tour operators (users of aviation fuel, which is priced in dollars, and accommodation, which is often priced in Euros), will have hedged forward both their commodity and their currency exposures for at least the next season – and probably two.
COMMODITY & INPUT PRICES:
• Oil price down a little over the weekend, trading at present at around $40.90 per barrel.
• Re oil, the US rig count rose last week (apparently) for the first time since December.
• Gold price also down a little. Trading at around $1,243.50 per ounce suggesting that the gold / oil ratio is currently unchanged at around 30.4 barrels of oil per ounce of gold.
RANDOM INFORMATION, HOPEFULLY NOT ALL OF IT USELESS:
• A down-day today but the S&P in the US is now up for 2016 as a whole.
• All 3 FTSE indices are now ahead of their 50dy moving averages.
• Travel stocks a little better on Friday (oil price down) and recent fallers (ETI, MAB, WTB) also bouncing. Break-up rumours (really a spin-off of Costa) probably did WTB’s share price no harm.
• Whitbread converting its Taybarn units to Brewers’ Fayre. WTB is an excellent incubator of businesses, witness Costa, but Taybarn (arguably, being an all-you-can-eat offer) didn’t look like a runner.
• CPI numbers tomorrow
• Interesting to see the FT comment re Argos “Steinhoff executives concluded that they could not acquire the assets of Argos at a price that would offer shareholders an adequate return”.
• Next. Numbers on Thursday. Press not supportive, could be that halo is slipping a little?
THIS MORNING’S TWEETS:
1. DP Poland reports full year numbers, system sales +22%, total store EBITDA >1m PLN for the full year. Group EBITDA loss down 31%.
a. DPP FY. Group now operates in five cities, Warsaw, Krakow, Wroclaw, Gdansk and Szczecin, with 16 managed & 8 sub-franchised units
b. DPP FY: System sales up 15% including impact of 3 stores closed in 2014. Seen 13 consecutive Qtrs. of double digit LfL growth
c. DPP FY: Group says LfL system sales +16%, LfL gross profit +27%, LfL order count +14%. Group is ‘maintaining strong like-for-likes’.
d. DPP FY: Group’s top 3 corporate stores averaged £58k EBITDA each in 2015 vs £24k each the year before
e. DPP FY: Says ‘stores 25 and 26 to open imminently’ and says it has a ‘substantial store opening pipeline for 2016’.
f. DPP FY: Group says ‘double digit like-for-like System Sales growth continued January-February 2016 at 27%’.
2. JDW announces buy-back of another 85k, these at 700p. Group now this year bought 1.46m for £9.6m, an average of 656p per share
3. Research from Lancaster University suggests that the relaxation of licensing hours in the UK has led to a rise in binge drinking.
4. Alison Brittain, CEO of Whitbread, is facing calls to consider spinning off its highly successful Costa Coffee business
5. Burger King has got permission to sell alcohol in the UK for the first time, in its Waterloo Station branch.
6. Soft drinks companies preparing to sue government over proposed tax reports Sunday Times
7. EAT is reported to be facing a £3.6m VAT bill for charges relating to heated sandwiches
8. Petainer, one of the UK’s largest beer-keg manufacturers, is said to be considering a c£100m IPO
9. Consumer spending rose by 3.3% in February, second decline since peak growth at 4% in December
10. Risk Capital-backed Red Hot World Buffet has placed its entire estate of six sites on the market for c£5.5m, writes MCA.
11. Whitbread is converting its seven-strong Taybarns buffet chain to its larger traditional pub food format, Brewers Fayre.
12. Chancellor George Osborne’s move to increase wine duty in line with inflation will see drinkers pay £1.3bn more over next 5yrs
13. Hackney-based London Fields Brewery, also known as ‘Britain’s most fashionable brewery’, has been placed on the market for c£3m.
14. Craft beer is continuing to boom in the UK, according to the Society of Independent Brewer’s MD Mike Benner
15. Centre for Economic Performance says British households could be £1,700 a year worse off on average if UK leaves EU
16. Starwood has become the first US firm to agree a deal with Cuba since 1959. Will renovate & run 3 hotels in Havana
17. Five killed in suicide attack in Istanbul, FlyDubai plane crashes in Russia killing all on board
18. Starwood Hotels & Resorts says a $13bn cash offer from China’s Anbang Insurance Group Co is ‘superior’ to one from Marriott
a. Starwood has further informed Marriott that it means to terminate the merger agreement with Marriott unless new terms can be struck
19. Federation of Small Businesses’ latest survey shows the owners of SMEs are less confident than at any time since 2013.