Langton Capital – 2016-06-27 – Brexit news, High Street, on-trade, holidays & other:
A Day in the Life:
I’ve been warned not to be too downbeat here so I’ll try to keep it balanced.
We may have voted to leave the EU and may already be in recession but at least we don’t have to straighten our bananas.
Sterling’s down (and the Bank of England may be in the invidious position of having to cut rates to zero in order to bolster demand only to put them up again in order to reflect ratings downgrades) but we can have matches 1” long (rather than 33mm) and we can carry on driving on the left.
Jobs may be lost, house prices may fall, London may atrophy and the young may emigrate but the provinces punched London on the nose (Question Time commentator) and we’ll all be OK if we pull together and think of England (apocryphal 73yr old Brexit-favouring Hull lollipop lady).
A Polish medical student friend of one of my sons was told to F-off home on Friday, migrants everywhere may be looking over their shoulders – and getting that genie back in the bottle may take some doing. But we can sell fish in pounds rather than kilos and we won’t be adopting the Euro any time soon, so that’s all kinda 50:50, innit?
And that, unfortunately, is all the balance that I can manage at the moment. On to the news:
RECENT WEBSITE ARTICLES:
• Recent notes – here
• Ongoing tweets, older emails found – here
PUB, RESTAURANT & DRINKS PRODUCER – BREXIT SHOCK:
• Pernod Ricard remains committed to growing its Scotch whiskies and gin businesses in Britain regardless of the EU referendum result. The UK is one of the group’s largest markets in Europe after France, and the spirits maker has confirmed that it will ‘continue to invest and develop out business as we always have done’.
• The BBPA’s Brigid Simmonds has vowed to ‘ensure the Brexit negotiations do not harm our exports abroad and the competitive position of beer and pubs in Britain.’ Simmonds also stressed the importance of rapid action by the Government to protect the nation’s economic stability and consumer confidence.
• Kate Nichols of the ALMR says that although ‘the uncertainties that will result from the referendum’s outcome are unwelcome,’ all parties must work together.
• Horizons’ managing director Peter Backman has also contributed to the national discussion and is expecting ‘intense’ uncertainty for the next ‘five years or so’. Backman added: ‘Notably for foodservice, the pound will remain volatile and will trade at lower rates than over the last few years. Consumer sentiment will probably remain depressed, costs will be elevated, and there will be some uncertainty over employment because of our reliance on European labour…’
• Horizons. ‘…Overall we could be facing reduced sales, increased costs and lower demand from the home market and while this could be offset to a small degree by more foreign tourists coming here due to the fall in the value of the pound, the eating out market now faces less growth than we predicted for this year and next.’
• Vocal Brexit campaigner and JD Wetherspoon founder Tim Martin has said that the UK is ‘in an immensely strong position’ following the referendum. With the pound falling to multi-decade lows and markets tumbling after the vote, Martin commented that any anxiety regarding the economic impact of leaving the EU will prove to be misplaced.
• Save the Pub chair and MP, Greg Mulholland, commented that he will ‘continue to fight for a better, fairer Britain’ despite being disappointed by the referendum outcome. Mulholland added: ‘The pound has already dropped to its lowest value for over thirty years and the process of exit and negotiating trade deals with other countries will be lengthy and costly. Nevertheless, I fully respect the will of the British people and with all MPs will work with Government to deliver that.’
• Operators Punch Taverns & Marston’s have stressed that, for the moment, it is business as usual
• MCA quotes incoming Young & Co CEO Patrick Dardis as saying most businesses are ‘uncertain as to what will happen.’ He sees uncertainty for up to 2yrs.
• Luke Johnson has said that rents may fall whilst Diageo said that it remains committed to Scotland, which is currently in the UK
• Petrol prices may rise by c5p by the end of the week.
• Commodity prices, which are largely priced in US$s, will become more expensive in Sterling terms
• UK High Street anticipating tougher trading. Retailer quoted as saying reality will take time to set in.
• AB InBev is expected to have to absorb a paper loss that could amount to billions due to the fall in sterling, as it has to crystallise a £45bn at the end of this month.
• Farmers’ leaders have warned that shoppers must prepare for a painful surge in food prices as a result of leaving the European Union. Food producers face a significant decline in exports to Europe and farmers say that UK consumers will have to make up the shortfall, while there are concerns that losing hand-outs given under the EU’s Common Agricultural Policy to support production will push prices even higher.
• See also Finance & Markets below.
PUB, RESTAURANT & DRINKS PRODUCER – OTHER NEWS:
• Coca-Cola has acquired a minority stake in Aloe Gloe, which will now operate as part of the soft drinks giant’s Venturing and Emerging Brand division.
• Revolution Bars Group is in talks to acquire four bars in Edinburgh with a combined EBITDA of £3.3m for an expected £16m. However, the UK’s vote to leave the EU has cast uncertainty on the deal going ahead and the group is evaluating whether or not to push forward with the agreement, which would be funded by a combination of debt and equity.
• The owner of Red Hot World Buffet, Passepartout Ltd, is entering administration and has been putting its sites on the market since February. Minutes from a recent board meeting reveal that the company is ‘unable to pay its debts [due to] financial difficulties’.
• Better Capital says Intertain, which it owns and which operates the Walkabout chain of bars, has had a ‘strong year’ after investing heavily in its estate. The group commented: ‘Intertain, which operates predominantly the Walkabout late-night venues, has enjoyed a strong year under Fund II’s ownership. Unencumbered from certain loss-making venues following a Company Voluntary Arrangement (CVA) in February 2015, the business has been able to invest into the existing estate and acquire additional sites. These new investments have performed to expectation.’
• Living Ventures plans to add 13 sites to its existing 31-strong estate over the next year in cities across the UK, including Liverpool and Manchester.
LEISURE TRAVEL & HOTELS:
• Thomas Cook suspended its online currency sales on Friday following unprecedented demand as a result of fluctuations in the value of sterling.
• Abta foresees no immediate change in European regulations as a result of the UK voting to leave the EU. Once the UK formally announces its intention to leave, EU member states will have up to two years to hammer out a deal for a future trading relationship.
• Monarch Airlines is seeking £35m in capital after issuing a going concern warning in its annual report despite some £200m of cost cutting in just over a year.
• UK tourism to Tenerife jumped by more than 20% in the first five months of the year to more than 800,000.
• The European hotel industry recorded a small 0.3% drop in occupancy in May to 73.4%, despite a 2.1% increase in ADR to €114.28 and a 1.7% rise in RevPAR to €83.89.
• International Consolidated Airlines does not believe the vote to leave the EU will have a long term material impact on its business, although it has led to weaker short term trading. The group no longer expects to generate an operating profit increase similar to 2015.
• TUI CFO Horst Beier has told the German Press that a Brexit would hurt its profits. It says, nonetheless ‘even if Britain is an important market for us, we are a globally active company. And the growth prospects for global tourism are very positive. So we are confident that we can keep the impact small.’
FINANCE & MARKETS – BREXIT SHOCK:
• HSBC warns inflation may rise to 4% next year if Sterling fall holds.
• Bank of England promises to do what it takes. Suggestion that rates may go to zero. This may not be consistent with 4% inflation & weak Sterling.
o Bank says ‘inevitably, there will be a period of uncertainty and adjustment following this result.’
o Says ‘it will take some time for the United Kingdom to establish new relationships with Europe and the rest of the world. Some market and economic volatility can be expected as this process unfolds.’
o Bank reassures ‘we are well prepared for this.’ Says it has been in constant touch with Chancellor Osborne.
o Says UK banks robust, etc.
• Sterling touched 30yr low versus US dollar. Commodity prices, including oil, therefore higher in Sterling terms.
• Moody’s cuts UK credit rating outlook to negative from stable. Expects a ‘prolonged period of uncertainty’
• Provinces kick London in nuts.
• Some bank jobs may leave London.
o Press speculating on 50k.
o Morgan Stanley denies plans to move 2k to Dublin & Frankfurt. Might it be waiting to see if Edinburgh stays in
o HSBC ‘may move 1k to Paris says BBC
o Sajid Javid suggested c0.5m jobs in total may be lost.
• £15bn of IPOs said to be ‘in peril’
• Top end (>£1m) London houses set to slump.
o Guardian reports homebuyers pulling out of deals, esp. London
• Merrill Lynch suggests UK could enter recession. May already be there but won’t be measurable for months.
• Gold moves up to 2yr highs.
• China says Brexit will ‘cast a shadow over the global economy’. Says fallout will emerge over 10yrs. Is a ‘reversal of globalisation’. BBC quotes officials as saying will be ‘very bad’ for both the world and China.
o Last year, China invested $3.3bn directly in UK. That figure is unlikely to go up until the Middle Kingdom has some clarity on outlook.
• Hiring freeze likely in wake of Brexit vote reports Institute of Directors. A third of respondents will remain the same, 5% cut jobs. IoD says ‘we can’t sugar-coat this – many of our members are feeling anxious.’ It adds ‘a majority of business leaders think the vote for Brexit is bad for them, and as a result plans for investment and hiring are being put on hold or scaled back.’
• Sterling down further in Far East Monday trading. Now trading around $1.33, down a further 3% from Friday’s close
• George Osborne to talk in House of Commons this morning. He will ‘provide reassurance about financial and economic stability’.
FINANCE & MARKETS – OTHER NEWS:
• World markets down sharply Friday. UK’s FTSE100 down 199pts & Europe lower. US markets down & Far East down in Monday trade
• UK market forecast by IG (as at 7.10am) to open down 115pts
• Oil price lower on ‘risk-off’ move globally. Brent Crude trading at around $48.25 per barrel.
RETAIL NEWS WITH NICK BUBB:
• Saturday Press: The shock Leave win in the EU Referendum, the turmoil on the stockmarket and the resignation of the Prime Minister, together with the renewed speculation about another Scottish Independence Referendum, obviously dominated the Saturday papers…but the news that Poundland has rejected a cash bid approach from the South African retail group Steinhoff and that Steinhoff is now “considering its position” in the light of “Brexit” got some focus as well, eg it was the lead story in the Daily Mail market report and was also noted by the Telegraph. The slump in the Housebuilders and Banks caught the eye on “Black Friday”, but the FT had a detailed article about the plunge in the General Retail sector on Friday, headlined “Battered High Street counts the cost of Brexit” and focusing on the collapse in the share prices of Debenhams
• Sunday Press: The Sunday papers were full of the political turmoil in both the Tory and the Labour parties after the shock “Leave the EU” vote, but there was plenty of doom and gloom about the economic outlook, with the main Business story in the Sunday Times headlined “Rates head for zero to avoid Brexit meltdown”, while the Mail on Sunday went for “Brexit vote will plunge the UK into a new recession”. The Mail on Sunday also flagged that the leading Eurosceptic, Simon Wolfson of Next, has said that the UK must not “raise the drawbridge” and become protectionist and that the M&S Director Patrick Bousquet-Chavanne tweeted on Friday that the Leave vote was a “senseless and tragic choice”. All this rather overshadowed the latest revelations in the BHS and Philip Green saga, with the Sunday Times flagging that Philip Green
• Grocer Watch: The widely followed Grocer “33” weekly supermarket pricing survey in Saturday’s magazine saw Sainsbury chalk up a rare win, with its £71.41 basket at least £10 cheaper than its rivals, but this was heavily distorted by a half-price deal on beef steak (£15 rather than £30…). But for the steak deal, Morrisons would have been the cheapest, with a £81.67 basket, 8p cheaper than Asda. Last week’s winner, Tesco, dropped back to 4th, on £88.65, with Waitrose coming in a distant 6th, with a £98.38 basket, almost £10 dearer than Ocado…There was also good news for Sainsbury in the separate Grocer “Mystery Shopper” weekly survey on Store Service and Availability, as its 39,000 sq ft supermarket in Barnwood in Gloucester, easily topped the rankings, with a decent score of 83 out of 100.
• News Flow This Week: After all the focus last week on the outcome of the EU Referendum, this week will be taken up by the political fall-out, so it will be a relief to see the start of Wimbledon this afternoon and the England vs Iceland game in Euro 2016 this evening…Tomorrow then brings the Ocado interims and the Carpetright finals, plus the latest Kantar/Nielsen grocery market share figures, with the Dixons Carphone finals and the ASOS Strategy Day following on Wednesday. And as the end of the month is coming up fast now, we get the CBI Distributive Trades survey for “June” tomorrow morning and the monthly GFK Consumer Confidence survey first thing on Thursday (albeit the survey work for both was done well before last week’s EU Referendum drama).
YESTERDAY IN A NUTSHELL – SEE LIVE TWEETS ON WEBSITE:
• Some of our morning tweets: Brexit not helpful for domestic stocks. GDP expected to be lower, less money to be spent etc. But life goes on.
• We’ve got decent weather, the football, rising real wages but, on the other hand, we’ve now got a Brexit to deal with.
• Domino’s Pizza Group has confirmed that its 3 for 1 share split will take place from Monday morning
• Whitbread is incubating a new all-day dining concept called Picknic Kitchen and will be trialling its first site in Milton Keynes this autumn
• Brexit hits Sterling. That hurts overseas travellers (poss. TCG, TUI) but should drag in more visitors to UK (MERL, some hotels).
• Hotel market ‘could face strong headwinds for future growth’ post Brexit vote reports STR.
• STR says ‘one possible Brexit scenario would be negative for London’s hotel industry’. Says size of hit ‘is difficult to gauge’.
• Lower rate of Sterling could pull in overseas visitors. Won’t help those going abroad over the summer, however.