Langton Capital – 2016-04-07 – Easter trading, leisure travel, Premier Foods & other:
A Day in the Life:
Don’t you think that, in the run up to a break, your world splits periods into ‘before the holiday’ and ‘after the holiday’?
It might be Christmas, Easter or a break in the Maldives or whatever and I suppose some sort of split between the periods is to be expected but I for one find that the two parts of my brain don’t communicate very well with each other and I’m busily making plans for ‘after Easter’ in early March but, after the break, I can’t recall clearly what I’ve said and done.
Maybe I’m going a bit gaga but, in that case, I must have been gaga for the last thirty years or so because it’s a problem with some vintage at least chez Langton.
Hence I should perhaps call for forbearance from those people, clients, relatives, acquaintances etc. whom I’ve double booked or left waiting in coffee shops or whatever and say that, from here on in, I’ll try to do better. On to the news:
PUB, RESTAURANT & DRINKS PRODUCER NEWS:
• Coffer Peach Tracker updates on sluggish Easter, overall LfL sales +0.2% with restaurants > pubs as ‘public keep out of the rain’. Tracker suggests ‘wet and stormy weather across Britain put a dampener on people going out to eat and drink over the Easter holiday weekend’.
• Easter Tracker: An early Easter is always more likely to catch inclement weather. Pubs down 1.6% LfL. Beer gardens hardly full.
• Easter Tracker: Reports drink led pubs & bars down 2.1% over the 4dy weekend but restaurants were +4.3%. Peach’s Peter Martin reports ‘the public presumably chose indoor activities like shopping and the cinema rather than going outside.’ He adds ‘overall the market shouldn’t be too disappointed, however, considering the severity of the weather and the fact that last year was a bumper Easter, with like-for-likes 5% up on 2014.’
• Tracker: Coffer Corporate Leisure reports ‘overall, the industry should not feel too perturbed by the numbers given the mixed weather we experienced and an earlier Easter than last year.’
• Tracker says ‘outlook for eating and drinking out numbers appears to be much tougher over the coming months than we have seen in 2015’. Says comps are strong and there is ‘low confidence from consumers and leisure business owners alike ahead of the referendum.’ Coffer Corporate Leisure adds ‘new openings in the restaurant sector especially could mean like for like sales are tough for existing operators.’
• Constellation Brands FY numbers. EPS 543c vs 518c. Sales $6.5bn, up 9%. EBIT +18% at $1.9bn.
• Constellation FY. Says for FY17 it expects comparable EPS of 605c to 635c. Announces purchase of Prisoner Wine Company portfolio of super-luxury brands. It says this transaction is expected to be accretive for fiscal 2017CEO Rob Sands reports ‘it has proved to be another dynamic year of significant accomplishments and impressive financial results for Constellation.’
• Constellation CEO Sands says ‘in fiscal 2016, our beer business delivered industry-leading market results as the #1 growth contributor in the U.S. beer category, achieving stellar growth across the portfolio.’ He says ‘overall, we are excited to build on the success of fiscal 2016, as we are targeting impressive results for the coming year.’
• Enterprise Inns has announced that it yesterday bought back 111,067 of its own shares at prices between 96p and 99.5p
• The UK’s hospitality sector has seen a slump in growth in the first 3mths of 2016 per CIPS, with restaurants, hotels and pubs seeing their slowest rise in new business since 2013. The new report from Horizons indicates than an overcrowded market following a boom in the sector and uncertainty over the EU referendum are key factors in the step change.
• Moody’s has downgraded Soho House bunds to Caa2 and just three levels away from default status over liquidity fears, writes Propel. The ratings agency explained its decision: ‘Soho House’s strong brand and growth potential although we are conscious of the capex required to support this growth. Moody’s is also mindful of the uncertainty that results from Soho House exploring growth opportunities in new markets where the model is yet to be proven, which we expect may challenge profitability. The negative rating outlook reflects the uncertainty embedded into Soho House’s ambitious growth plans and the likelihood of associated volatility in operating results. In addition, leverage will remain high and interest coverage will continue to be pressured in the next 12 to18 months.’
• Andrew Page, former chairman of The Restaurant Group, has become chairman of 75-strong Côte as it looks to grow its brands. Speaking to MCA, Page said: ‘Alex and the team at Côte have built a superb business with significant potential for further profitable development. I am delighted to be joining as chairman and look forward to working with the team and BC Partners to deliver further continuing success.’ As well as its central chain of the same name, Côte is looking to grow its fledgling concepts Jackson & Rye and Limeyard.
• Liberation Group CEO Mark Crowther has told MCA there has been significant interest in the group from suitors and he expects its refinancing to be finished by this summer. The group is looking to expand its West Country-based Butcombe estate, acquired in January of last year, and is embarking on an investment drive as well as looking at further additions.
• More than half a million new cars were sold in March in the strongest month in the UK since 1999, according to SMMT figures. Consumer spending on big ticket items shows no signs of slowing down, as witnessed also by recent strong sales in furniture and fittings as reported by various retailers. The 519,000 cars sold is second only to the 525,539 cars sold in August 1997.
• Scotland’s economy grew by 0.2% in Q4 of 2015 but lagged the UK as a whole, which saw its GDP rise by 0.6% by comparison. On an annual basis, Scottish Gross Domestic Product increased by 0.9% vs 2.1% for the UK.
PREMIER FOODS’ BID APPROACH FROM McCORMICK:
• This is something that we’ve tried to keep close to.
• Recent notes include commentary on the group’s pension liability and a piece earlier in the week on ‘anchoring’ and how, if a buyer has bid a ridiculously low figure for an asset, a house, a painting, a company, it may succeed in ‘anchoring’ the market around that figure and turn the transaction to your advantage. A couple of points from our recent pieces are set out below. If you would like more detail, drop us a line.
• The Fundamentals: PFD is a recovering stock; much of the heavy lifting has been done. Whilst this has not been acknowledged by the Stock Market, competitors (McCormick, Nissin, maybe others) recognise it. PFD has high-profile brands with overseas potential. Shareholders may be on the slow-road to 150p over 3-5yrs.
• The Bid(s): McCormick has conditionally offered 52p, 60p and 65p. It has ‘anchored’ the approach at such a level that shareholders may be tempted to roll over at a regrettably low price.
• The Options: The company could go it alone – or at least try to. PFD could agree the bid at 70p, 75p or 80p. It could engineer an auction.
• Since the above was written on Monday, PFD has met with McCormick. The talks are said to have been ‘constructive’. PFD, however, maintains that 65p still undervalues the company. It produced a 44 page presentation, which is now on its website, to argue that it has a bright future as an independent company. It does not specifically address key issues such as its pension fund, the potential re a White Knight, when (of if) it will ever pay a dividend again etc.
• World Travel and Tourism Council president David Scowsill has told Travel Weekly that terror attacks have had little effect on global tourism growth. The WTTC’s Economic Impact Report 2016 finds that growth in travel and tourism outpaced economic development in the majority of countries last year, growing 3.7% and adding more than seven million jobs. WTTC president and chief executive David Scowsill explained: ‘The negative impacts are regionally specific. There is a movement away from centres hit most recently – from Turkey, Tunisia and Egypt to Spain, Italy and Greece. But we’re not seeing a drop in bookings [overall]. We keep an eye on GDS bookings and don’t see any fall-off in demand.’
• Travelzoo research contends, however, that, while global tourism is growing, safety is now a prime concern for almost three quarters of people considering a holiday this summer. A trend towards staying close to home has been confirmed by the travel deals company, which has found that the UK is the top destination this year, beating Spain and France among others. A poll of 2,000 British consumers shows that safety (71%) has become the most important factor in deciding where to go, trumping affordability (52%), and good weather (42%).
• Travellers to and from Greece have been warned of potential disruption today due to strike action by public sector unions over pension reforms. The Foreign and Commonwealth Office has warned those that might be affected to check with their airlines or tour operators.
• Thomas Cook is looking to cut 18 jobs from Hotels4U as the travel giant sets about restructuring its bed bank division.
• Private equity-backed Pure Gym is going ahead with plans for a flotation that could value the budget chain at c£500m. Investment banks Jefferies, JP Morgan, and Credit Suisse are handling the float. The move would follow rival The Gym Group’s £250m IPO last November.
FINANCE & MARKETS:
• Fed minutes note concern over risks of global economic slowdown. They say it was a key factor in decision not to raise rates in March. In December, the Fed said it believed that it would raise rates four times in 2016. This has now slipped to two times. it says it has ‘judged that the headwinds restraining growth and holding down the neutral rate of interest were likely to subside only slowly.’ It adds ‘In light of this expectation and their assessment of the risks to the economic outlook, several expressed the view that a cautious approach to raising rates would be prudent or noted their concern that raising the target range as soon as April would signal a sense of urgency they did not think appropriate.’
• World markets: UK and Europe up yesterday. US also higher. Far East mixed, down for choice, in Thurs trade
• Oil price up overnight at around $40.15 per barrel
Merlin Entertainments in 60 Seconds…
• Merlin suffered last year on the back of 1) the Alton Towers accident and 2) Sterling strength
• Sterling has weakened & MERL reports Q1 trading numbers 19 May
Positive news-flow continues:
• Currency helpful. Weaker Sterling (esp. vs Euro) keeps Brits at home & draws inbound travellers to the UK (esp. London)
• Staycations: QHotels says c1m holidaymakers will stay in the UK as a result of increased concerns re travel
• Safety: Travelzoo has reported that 71% of Brits surveyed had adapted their travel plans as a result of terrorism fears
• Value: Butlins says 42% of UK holidaymakers think the UK is an undervalued destination
• Domestic bookings: Hoseasons has had 7 of its 10 best ever booking days in the last quarter
• European visitors: VisitBritain has reported overseas visitor numbers +6% y-o-y in Jan (the latest month for which data is available) to 2.5m. Sterling has weakened since
• Overseas expansion: This is continuing apace, the group will update next month
Other factors, share price etc.:
• We commented post the regrettable Alton Towers crash that weakness in the group’s shares represented a buying opportunity at around 370p
• This did prove to be the case but, we would contend, MERL’s shares, though perhaps no longer cheap, per se, still represent fair value at around 22x this year’s earnings
Retail Roundup from Nick Bubb:
Marks & Spencer: The much-awaited Marks & Spencer Q4 trading update will come out at 7am this morning, shortly after we’ve gone to bed in sunny Colorado, but we’ll find out soon enough how well the company managed expectations…Despite weak comps, the City has been expecting General Merchandise sales to be a bit over 3% down LFL in the period, with Food sales up a tad LFL, but the sharp jump in the share price just before the close last night implied that somebody expects the news to be better than that…It is not clear, for example, if the City baked in the benefit to Q4 from Easter moving forward a week, although we would expect M&S to clarify the impact. It is also not clear if it will be Steve Rowe or Marc Bolland who will be handling the analyst’s conference call…
Dunelm: This morning also brings the Dunelm Q3 trading update and, though it is unlikely to get much attention in the press, they will also have an odd timing impact on sales to explain. With the interims on Feb 10th (for the 26 weeks to Jan 2nd), Dunelm explained that due to the 53rd week included in the last financial year, the interim figures included eight days of the Winter Sale, compared to only two days of Winter Sale included in the comparative period. This boosted LFL sales growth by c£10m (equivalent to 2.6% over the half year), but this impact will reverse in the Q3, to leave stated LFL sales broadly flat, although Dunelm will no doubt clarify the underlying sales trend and any Easter-adjustment.
Topps Tiles: Interestingly, yesterday’s pre-close update from Topps Tiles reported that Q2 growth (for the 13 weeks to April 2nd) was slightly reduced by the fact that the earlier Easter ell within the first half this year: “we estimate this reduced LFL sales growth in the quarter by c0.6%”. Nevertheless, LFL sales growth still picked up to a very solid 4.9% and the statement was perfectly upbeat (CEO Matt Williams said “we enter the second half of our financial year in good shape, confident that our plans to extend the appeal of the Topps brand will underpin our further progress”), so it’s a bit of surprise that the share price eased off slightly.
Today’s Press and News: The main focus is on the 3% rally in the Next share price, eg as the lead story in the FT market report puts it, “Next bounced off a two-year low yesterday after one the retail sector’s most-followed analysts said the stock had fallen too far” (the broker Haitong upgraded Next from “sell” to “buy”: see below). We can’t see much coverage of the Topps Tiles trading update, but there are a few snippets about the bumper SMMT new car sales figures for March (the UK’s new car market grew by 5.3% in March, to 518,707 vehicles, making it the biggest ever month since the bi-annual plate change began in 1999) and the slightly better than expected H&M Q1 results, whilst the FT has a big feature article about the market share pressures on mighty Wal-Mart in the US.
Next Share Buyback Watch: The shrewd “Mr Share Buyback Man” was in action yet again yesterday, picking up another c£5m worth of Next stock (c93,000 shares at an average price of 5346p), to take his post results activity to £30m in total, and this time he managed to get the price up, with the shares closing at 5410p (with a little help from an upgrade from the “scourge of Next”, the veteran analyst Tony Shiret…). Nick Bubb – email@example.com