Langton Capital – 2016-05-09 – Gregg’s, Restaurant Group, Thomas Cook & other:
A Day in the Life:
So how is it that we can grow nettles, but we can’t grow daffodils?
We can grow brambles and thistles by the bushel but the rabbits eat our cabbages, roses get rose blight, lilies fall to the lily beetles, pin worm eat our potatoes and most other flowers simply die, Martian flu, probably whilst daisies, clover, wild grasses and other undesirables thrive like rats on a rubbish dump and we’re left with a throwback, uncultivated garden and a whole bunch of well-fed pests.
What is it, is the soil’s PH balance wrong? Is there too much shade, too little light, is it too warm, too cold, too windy?
Maybe I should talk to the plants, tell them to step up because I mean fellas, come on, where’s your survival instinct, what do you want, a bigger dressing room? I mean get on with it. For dandelions it’s, like, a crack in the concrete, woohoo, can’t you make an effort?
Anyway it’s Monday, we’d better get on. Here’s the news:
PUB, RESTAURANT & DRINKS PRODUCER NEWS:
• Greggs updates on trading to week 18, says it has had ‘a good start to the year’ with total sales +5.7%, LfLs +3.7%.
• Greggs to w18. Has completed 55 shop refits, opened 43 new shops & closed 21. Says its breakfasts + hot sandwiches driving growth
• Greggs: Says ‘consultation on supply chain investment proposals [are] progressing’
• Greggs: Says ‘conditions on the High Street were softer in March before recovering in recent weeks’. Recovery sounds helpful. It adds ‘these conditions were reflected in our own performance.’ The co says ‘the improvements made to our shops and our product range continue to drive growth in sales. Our hot sandwich range and extended breakfast menu have proved particularly popular and the introduction of our flat white coffee is helping to continue our delivery of double-digit growth in sales of hot drinks. We have extended our fresh fruit offer and have been encouraged by trials of our upgraded range of salads, which are freshly prepared in store and now available nationwide.’
• Greggs: Says trading & numbers remain in line with expectations.
• Greggs comments reveal that innovation remains necessary. New initiatives are driving growth. Overall, group says ‘input cost inflation remains low despite increased wage costs and, with a strong pipeline of product initiatives and plans to invest in our shops and supply chain, we expect to make progress in line with our previous expectations.’
• Times suggests RTN boss Danny Breithaupt sounds like he’s ‘been through the wringer emotionally’
• RTN: Co tells Times the problems it faces are not simply a problem for TRG alone. Analysts less certain that’s correct
• RTN says Frankie’s brand is “a brand that has still got relevance”. Individual sites are “extremely profitable”
• RTN: Times says ‘the big question everyone is asking is whether Breithaupt will make it to the interims.’
• Leon is planning to sell a stake of its business to investors as it looks to expand overseas following a strong year of sales in the UK. Next month, the first non-UK Leon will open in Amsterdam’s Schipol airport as part of a franchise partnership with HMSHost. The Co-founder John Vincent said: ‘We’ve got an agreement to do loads of restaurants in northern Europe. We’re also doing America.’
• Enterprise Inns CEO Simon Townsend says that business is still good despite the upcoming MRO option, saying: ‘Our ability to attract and retain great licensees shows no sign of diminishing and in fact is on the increase.’
• British whisky stands to lose should the UK leave the EU, according to environment and business secretary Liz Truss. Ivan Menezes, chief executive of Diageo, which produces Johnnie Walker, Bell’s and Buchanan’s scotch, said the industry benefits ‘greatly’ from the EU’s negotiating clout in international trade, which he said had helped to open up new markets, reduce tariffs and resolve trade disputes. ‘This drives significant value for us and the wider Scotch whisky industry, sustaining jobs and growth at home,’ he said.
• Enterprise Inns bought back 93,653 of its own shares at around 88p on Friday.
• Brewhouse and Kitchen is expanding into the North with the purchase of freeholds in Chester, Bedford, and Wilmslow from JD Wetherspoons. The sales of the Bollin Fee (Wilsmlow) and the Bankers Draft (Bedford) will be completed on 13 May, while the Forest House (Chester) will follow on 20 May.
• Speaking to MCA, Brakspear CEO Tom Davies has said the 8-strong group will go beyond its target of 10 managed sites as it looks to strengthen its operations team.
• JD Wetherspoon has bought the two-storey Red Lion pub in Bitterne, Southampton for £650,000.
• City Pub Company, which currently has 28 sites and is busy planning its upcoming IPO, is aiming for 50 sites by the end of 2019, writes Propel. The group’s flotation is expected to raise between £10m and £15m.
• iNTERTAIN has launched its new site, The Comedy Loft, on Broad Street, Birmingham, in partnership with comedy producer Just The Tonic. Simon Kaye. Chief Operating Officer at iNTERTAIN said: ‘Just the Tonic is extremely well-known within the industry for sourcing the best comedians in the business. This new partnership is designed to help us build The Comedy Loft brand, becoming known for top-drawer comedy and the best possible customer experience.’
• A William Reed/HIM survey of 211 foodservice operators shows that 56% believe that leaving the EU would cut red tape and help business.
• Thomas Cook cabin crew are voting on possible strike action during the May half-term school holiday as a result of health and safety changes to their rest breaks. Unite said there were mounting concerns that cabin crew were being pushed to the limit in an attempt to maximise profits, putting passenger safety at risk. It accused the travel company of a ‘repeated refusal to agree to talks and reach a sensible negotiated solution’. However, a Thomas Cook spokesperson responded: ‘It’s regrettable the union has chosen this path because the crew rest procedure, which includes monitoring all crew rest on all flights, was introduced with the agreement of the union.’
• A three-day general strike started on Friday in Greece in protest at further austerity measures being demanded in exchange for more bailout money. The next €5bn tranche of money is overdue, with talks faltering over the pace of reforms.
• Brits looking to visit the US must have a bio-metric epassport and as many as 3 million UK residents may find themselves ineligible with their current passports.
• The US hotel industry saw occupancy rise 1.5% to 68% in the week ending 30 April, while revenue per available room increased by 2.2% to $82.34.
• Derren Brown is collaborating with Merlin Entertainments as part of the group’s plans to gain ground on market leader Disney. Merlin is increasingly looking to drive customers through its doors by teaming up with popular brands and celebrities and its latest example of this, Derren Brown’s Ghost Train, will open this summer at Thorpe Park.
FINANCE & MARKETS:
• Bank of England reported to be preparing for a rate cut if Britain leaves the EU.
• The US economy added the fewest number of jobs in 7mths in April. Only around 160k workers joined the non-farm payroll
• US rate rise looks a little less likely as jobs growth slows. Opinions vary, to say the least.
• Fed’s William Dudley says that two rate rises this year are still possible. Says that would be a “reasonable expectation”
• The Nationwide has raised its upper limit for mortgage applications from 75yrs to 85yrs. Means taking out a 25yr mortgage at 60yrs now possible. What next, multi-generational mortgages? See Japan circa 1989 & contemplate how that ended.
• Both China exports & imports fell last month. Exports were 1.8% lower whilst imports were down by 10.9%. Marks 18th monthly decline.
• World markets: UK mixed Friday, Europe down. But US up and Far East mostly higher in Monday trade.
• Oil price bouncing. Trading at around $45.90 after a weak period last week.
• UK new car registrations up 2% y-o-y in month of April.
JD Wetherspoon & Restaurant Group; contrasting styles…
• In 2013, 14 & 15 we ran side-by-side pieces comparing JDW w. RTN.
• Whilst the companies were broadly the same size, we much preferred JDW
• RTN had lower sales but higher margins
• Whilst JDW ‘invested’ its lost margin in staff, product and premises & had more freeholds
• RTN was perhaps lean on cost & its prices were top quartile. JDW, well, wasn’t.
• Critically RTN was arguably run by accountants whilst the JDW boss is a pubs nutter
• This is critically important in determining culture & focus on short vs long term prospects
• JDW’s margins have remained under (self-imposed) pressure but trading is stable
• RTN, on the other hand, has managed three profit warnings in little more than four months
• It is changing its CEO, CFO and chairman in little more than a year
• Investors have a queasy feeling that its past is not an accurate guide to its future
• The RTN/JDW switch chart has an unpleasant, falling-out-of bed feel to it
Where to now?
• Might RTN get bid for? Yes – but what could a penny-pinching PE house bring to the party?
• Is JDW a better prospect at ‘twice the price’? In our opinion, yes.
• So would we switch back? We prefer pubs nutters with a 20yr view so, well, no.
Retail Roundup from Nick Bubb:
Grocer Watch: Despite the talk of more price-cutting at Asda, the widely followed Grocer “33” weekly supermarket pricing survey in Saturday’s magazine was won by…Tesco: their £44.92 basket was as much as £4.10 cheaper than Asda (which was also beaten, by 37p, by Morrisons). Having dumped its “Brand Match” scheme, it was no surprise to see Sainsbury trail in 4th place, with a basket of £51.78, and no surprise to see Waitrose trail in last, with a £56.13 basket. The separate Grocer “Mystery Shopper” weekly survey on Store Service and Availability was won by Morrisons, as its 27,500 sq ft supermarket in Ty Glas, Cardiff, topped the rankings, with an impressive score of 87 out of 100.
News Flow Next Week: Tomorrow brings the BRC-KPMG Retail Sales survey for April and first dealings in the Hotel Chocolat IPO. On Wednesday we get the Vertu Motors finals and the SuperGroup Q4 is on Thursday. Nick Bubb – firstname.lastname@example.org
Yester-tweet – Yesterday in a Nutshell: Live Tweets on Website:
(SOME OF OUR) EARLY TWEETS:
• A loophole spotted in the Pubs Code which would have made many licensees ineligible for MRO has delayed the introduction of code
• Dept. for Business, Skills & Innovation said ‘it is important to get the Pubs Code right for both tenants and pub-owning businesses
• Chair of British Pub Confederation Greg Mulholland called decision to delay code just 3wks before it is due to commence ‘extraordinary’
• BBPA says ‘the Government has made the right decision in recognising that more work is needed on the draft regulations
• Morrison’s yesterday said that retail price deflation in the food retail sector was 2.6%. This has been a boost to the on-trade.
• Merlin: Poor hotel REVPAR may not mean shortage of visitors. Poss. too many rooms. VisitEngland says Feb inbound numbers highest on record
• We believe that Merlin should be benefiting from the lower Pound as more overseas visitors come to London. See IHG & China comments
• Intercon reports Q1 numbers. Global REVPAR +1.5%, 5k new rooms opened, pipeline now 220k rooms w. 45% in build
• IHG Q1: Says UK REVPAR flat with ‘a solid performance in the provinces, offset by softer industry-wide trading in London
• Spending by Chinese tourists in duty free shops abroad up by 58% y-o-y reports Global Blue, a duty-free shops operator
• Chinese tourists spent $215bn on outbound travel last year, up 53% on prior year (Economist 30 April).
• Remember Thomas Cook’s JV with Fosun sees Chinese outbound tourists as a major growth area. And why wouldn’t it?
• UK services output slows. Markit/CIPS purchasing managers’ survey shows growth at around 0.1%, says economy near to ‘stalling’.
• Overcapacity in the London hotel market? Bad for hotels but arguably good for other operators. I mean, you gotta fill ‘em, right?
• Combine London hotel oversupply with lower Sterling & it’s good for MERL (H1 numbers 27 Jul). Not bad for pubs, hotels etc.
• Sunshine helps pub trade. Largest room in house is beer garden. Would’ve been nice to combine sun w. Bank Holiday but can’t have everything
• Services PMI poor. Combine w. other macro fears & top down is less positive. Co forecasts holding up. That’s the way to profit-warning-city