Langton Capital – 2016-03-22 – Daily Wrap: Thomas Cook, the China market, JDW & 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:
THOMAS COOK UPDATES ON Q2 TRADING:
• Thomas Cook’s Q2 update was arguably realistic rather than cautionary as such but, with terrorism and demand shifts a feature of the market at the moment, the one may be very similar to the other
• And TCG did use the word ‘challenging’ twice.
• This is perhaps to be expected but the group also used ‘broadly’ (a.k.a. ‘a bit below’) twice in the context that 1) lower booking levels were ‘broadly reflecting capacity reductions’ and 2) pricing is ‘broadly firm against last year’.
• Add in the fact that Brussels’ airport and metro system have been the targets of more terrorist attacks (also Istanbul and a crashed FlyDubai plane) and the group’s shares were arguably always likely to have a tough morning.
• But we would suggest that, horrible though such atrocities are, their impact should be transitory whereas other factors, such as the growth in Chinese visitor numbers, should continue for many years, if not decades.
OUTBOUND CHINESE HOLIDAYMAKERS:
• The FT reports that the World Travel & Tourism Council has suggested that outbound Chinese tourists spent some 53% more abroad in 2015 than they did the year before
• Spend rose from $140bn to $215bn. The WTTC, rather scientifically, reports that spend is ‘growing like crazy’.
• Spend has risen most rapidly in long-haul destinations. Indeed the WTTC reports ‘“severe declines” in tourism revenues in 2015 in Macau (down 32 per cent), South Korea (down 10.2 per cent) and Hong Kong (off by 8.4 per cent), each of which are highly reliant on visitors from mainland China.’
• The WTTC’s David Scowsgill reports ‘Europe has noticeably benefited from strong numbers of Chinese visitors, with major destinations like the UK and Germany, alongside emerging destinations like Iceland, profiting from strong Chinese outbound trends.’
• Here TCG has a JV in place with Chinese investor Fosun (49:51) ‘to develop domestic, inbound and outbound tourism activities for the Chinese market under Thomas Cook brands.’
• Back in June last year, the group said ‘the JV will combine Thomas Cook’s brand heritage, know-how and expertise in international travel with Fosun’s in-depth local market knowledge and operational resources, enabling Thomas Cook to benefit from direct exposure to China’s growing demand for leisure travel.’
• Hopefully the matter is progressing – though it is notable that the word ‘Fosun’ was missing both from the group’s Q2 and earlier Q1 trading update.
• Fosun bought 5% of Thomas Cook (via the issuance of new shares) last June with the promise that it would take its holding up to 10% via open market purchases. As at 25 November (TCG’s FY numbers), it had 5.8%.
• As at 25 Nov, TCG commented ‘we continue to make good progress in respect of our China joint venture. We have established the joint venture company, based in Shanghai, and have put in place the core management team, comprising both existing Thomas Cook staff and new external hires. Our business plan focuses on the fast-growing Chinese leisure travel market, and we expect to obtain the relevant regulatory licences to begin trading in the New Year.’
• An update would be nice.
JD WETHERSPOON’S SHARE BUY BACK:
• JDW putting its foot down as far as buying back its shares is concerned.
• Group announced this morning that yesterday it spent another £1.4m of some shareholders’ money buying back shares (from other shareholders)
• The group has this calendar year spent some £13.1m in buying back 1.96m shares at an average price of 667p.
• The group now has 117.3m shares in issue – meaning that some 1.64% of the group’s shares in issue have been bought back and cancelled since the group update on trading for its Q2 on 20 January
• It won’t be long at this rate before the group hits the 50% (of shares bought back) mark since it began purchases in earnest some 12 years ago
• Sterling up a little vs Euro, down vs US$.
• Means that dollar weakness is taking a day off.
• Impact, for the moment, marginal
COMMODITY & INPUT PRICES:
• Oil price up a little overnight. Now trading at $41.48 per barrel.
• Gold also up a little overnight – but not as much as oil. Yellow metal now trading at $1,251.16 per ounce meaning that the gold / oil ratio fell to 30.2 (30.2 barrels of oil to buy an ounce of gold) from 30.4 on Monday and 31.9 a week ago.
• Gold oil ratio falling could/should be a sign that markets are prepared to take a little more risk.
THIS MORNING’S TWEETS:
1. Enterprise updates on H1 trading ahead of capital markets day, says LfL net income +1.5% in 25wks to 19 March.
a. ETI update. Says its ‘implementation of strategy [is] progressing at pace’ and says its leased estate has been ‘reinvigorated’
b. ETI update: Group now has 245 commercial properties with an annualised average rental income of £58k per site.
c. ETI now operates 60 managed units and has announced a new managed expert partnership with Laine Pub Group.
d. ETI to buy back up to £25m of its shares. Says ‘we remain on track to meet our expectations for the full financial year’
2. The British drinks trade is reportedly preparing to question the science behind the government’s new drinking guidelines.
3. Website Stay In A Pub has launched a set of best practice guidelines for pubs with accommodation
4. Burger King’s Waterloo Station branch can now serve beer not more than 5% abv in plastic containers between the hours of 11am to 8pm
5. JDW buys back another 500k shares at 701p.
6. TCG updates on H1 trading, says ‘winter 2015/16 is closing out as expected, with 90% sold and higher pricing’.
a. TCG Q2: Says ‘summer 2016 is 40% sold, with bookings below last year as we continue to prioritise margins over volumes’.
b. TCG says ‘market conditions remain challenging, with consumer confidence affected by continued disruption in certain key destinations’
c. TCG reports ‘our early moves to rebalance capacity have seen us benefit from higher demand for Spain and long-haul destinations’
d. TCG reports some evidence of later bookings. Says it is ‘doing all the right things as a business’.
e. TCG says recent market disruption has enhanced value of packaged tours as customers ‘feel safer in our hands.’
f. TCG the numbers. No P&L but re Winter, bookings overall down 3% with selling prices up 3%. Summer is 40% sold (down 2pps) with prices ‘firm’
g. TCG Q2: Western Med up, also US & Cuba, with Turkey down. Group had anticipated these trends.
h. TCG conclusion. Group says ‘bookings continue to be disrupted by a volatile geopolitical backdrop’. This is delaying some bookings
i. China tourist numbers on the up. FT reports drop in visits to HK, Macau, but rise in numbers further afield.
j. WTTC says Chinese tourists spent $215bn outside mainland China in 2015, up 53% on the $140bn spent in 2014
7. Starwood Hotels has agreed an improved takeover bid from Marriott International worth $13.6bn following Anbang’s rival offer
8. Marriott expects comparable LfL systemwide RevPAR to rise by 2-4% in the first quarter of 2016 and of between 3% and 5% for 2016
9. US hotel industry sees growth in av. daily rate (+3.6% to $120.80) & REVPAR (+2.8% to $74.50), although occupancy down again
10. Gatwick is ready for a record Easter holiday period, with some 2.2 million passengers forecast to travel between 25 March and 10 April