Langton Capital – 2016-07-07 – C&C, Drake & Morgan, Heavitree, Brexit & other:
A Day in the Life:
Two weeks ago the UK voted to leave the UK. We’d be very interested to hear from readers as to how trading has been since.
The weather was better last year (good for pubs, less good for restaurants) so comps will be skewed there. The football will also have impacted trading and June should have also been helped by the shift in the Half Term week.
However, even taking the above into account, it should be possible to see whether or not there has been a short term impact.
This may be less of an issue where forward bookings are concerned (hotels, holidays) but walk-in customers may have been impacted.
Anyway, if you would be kind enough to let us know how you’re getting on we’ll collate information. We can share details with contributors and put a summary on our website when the information’s been processed. On to the news:
RECENT WEBSITE ARTICLES:
• Leisure, the Brexit impact – here
• Small vs large ticket items – here
• Recent notes – here
• Ongoing tweets, older emails found – here
PUB, RESTAURANT & DRINKS PRODUCERS:
• Whitbread announces sale & leaseback of 389-room Hub in King’s Cross. Sale is to L&G for £84.5m with £46.5m cash up front.
• Whitbread sells (and rents back) Hub hotel for £84.5m. Rent is £3.5m (4%). The group CFO Nicholas Cadbury says ‘this transaction shows the strength of Whitbread’s covenant and the strong asset backing to our balance sheet as well as our ability to recycle the value we create from our freehold developments into new opportunities.’
• C&C updates on 3mths to end-May, says ‘Group made a solid start to the year across core markets.’
• C&C says ‘volume shipped by brand in the first quarter represents a considerable improvement on the trends of last year’. It is +9% at Bulmers, +4% at Tennent’s in Ireland, +5% in the UK and Magners is +24%. Exports are up by 24%. Group says ‘in Ireland, some decent weather in March and May gave the cider category an early boost and the Bulmers brand enjoyed the benefit. There is momentum in the Corona brand and our wine portfolio and boutique beer range are beginning to perform. Heverlee and Clonmel 1650 were up 67% and 65% respectively in the on-trade in Northern Ireland. The strength of the portfolio in the North, backed by a willingness to invest in the on-trade through loan finance, delivered a number of good account wins in the quarter.’
• C&C reports ‘the recovery of the Magners brand in GB, evident in the second half of FY2016, continued in the first part of FY2017.’ It says ‘export is on track to deliver +20% volume for the year through a combination of organic growth and the impact of new distribution deals. The core export markets of Spain and Italy look set for a decent year. Tourism is up in Spain and Italy should benefit from the launch of a new format for Tennent’s premium range.’
• C&C on outlook. Says Euro-2016 ‘has been good for trade across Ireland in June and we anticipate a decent month for our brands.’
• C&C says ‘despite the solid start, we remain cautious on our outlook for the year.’ Points to referendum uncertainty. Group reports results in Euros & will be hit by Sterling’s weakness. Group says ‘while the longer-term economic implications of the UK referendum outcome are uncertain, the fundamentals of our brands and business model remain strong, supported by a robust balance sheet and cash conversion capability.’ It concludes ‘we are an Irish domiciled business with a dual listing on the Irish and London Stock Exchanges. This together with our focused operating model helps to provide a degree of balance to the risks associated with the UK’s decision to leave the EU.’
• Bowmark Capital-owned Drake & Morgan has purchased Corney & Barrow Bars Ltd for an undisclosed cash sum. The group says ‘the historical Corney & Barrow wine merchant business will continue to operate independently under the direction of chairman Percy Weatherall and Managing Director Adam Brett-Smith. Corney & Barrow dates back 230 years and is one of the longest established independent wine merchants in the UK and a holder of two Royal Warrants. Drake & Morgan will continue to work with Corney & Barrow as one of its preferred wine suppliers.’ Corney & Barrow operates 11 bars in and around the City of London.
• D&M more than doubles in size. MD Jillian Maclean reports ‘the acquisition strengthens our presence in the City and we look forward to working more closely with the Corney & Barrow Wine Merchant business, introducing their fantastic portfolio of wines across the Drake & Morgan estate’.
• D&M to grow to 25 sites by end-2017. Group has 9 units, is buying 11 (with Corney & Barrow) and will open 5 within a year.
• The BBPA estimated that drinkers supporting Wales will have drunk an incremental 1.1m pints last night. The BBPA says ‘the Welsh team are a source of pride for everyone in the UK, and the pub is the best place to cheer them on, so let’s all raise a glass to Wales.’
• Caledonia Investments buys Liberation Group from LGV Capital. The latter has owned the group since 2008. Liberation says ‘Caledonia is backing us as the existing management team in this acquisition, providing considerable additional funding to allow us to continue investment in the existing Channel Islands and UK business along with adding further acquisitions.’
• Liberation announces Richard Grainger will be appointed Chairman, succeeding Graham Turner.
• Liberation says it has ‘grown strongly since 2008’ during which time it has grown its estate from 65 to 94 outlets. Liberation CEO Mark Crowther reports ‘I would like to thank LGV and our Chairman, Graham Turner, for their advice and support during the last eight years. We are delighted to have a new partner to provide funds and insight to continue the growth of Liberation where expansion will be focused on the buy-and-build strategy in the UK whilst simultaneously growing and developing our business in the Channel Islands.’
• Wagamama has signed a multi-restaurant franchise deal to launch in Italy as part of the chain’s plans to expand in Europe, writes MCA. The agreement with Percassi Food & Beverage comes just days after the Duke Street Capital-backed chain’s deal to move into the French market and means Wagamama will now be present in a number of overseas markets via franchise agreements.
• Oakman Inns has posted Q1 like-for-like growth of 5.1% but adds it would be ‘foolhardy’ to say that Brexit is not a concern going forwards. CEO Peter Borg-Neal commented: ‘The rate of growth has been slower in recent weeks at around 2%. We had expected some fall off as major sporting tournaments are negative for us but we, like most people, didn’t anticipate the result of the EU referendum.
• ‘As ever, when the economy wobbles, the battle for market share tends to intensify. However, we have a robust strategy, excellent people and, importantly, the momentum of strong current performance.’
• Treasury Wine Estates has offloaded its non-core US commercial brand portfolio, which consists of 12 brands. The group does not expect the sale to impact FY16 pre-tax earnings, currently expected to be between $330m and $340m.
• Wadworth, which operates 45 pubs and a brewery, saw sales rise 1.7% to £58m and operating profit grow 2.1% to £6.5m in the year to 30 September.
• Pret à Manger is expected to open its first motorway service shop at the South Mimms Services on the M25, in a one-year trial with Welcome Break. The coffee chain, which also recently opened its first vegetarian-only site in Soho, will open more motorway sites should the first prove to be a success.
• Be At One like-for-like sales rose 9% in the first three months of its financial year to the end of June, writes MCA.
• Marston’s annual market report shows premium bottled ale grew by more than £48m in 2015 to £538m, and has grown by some 92% over the past six years. The report adds that this figure could rise to £1bn by 2020.
• Heavitree Brewery has posted a 24% rise in operating profit to £630,000 and a 28% increase in profit before tax to £505,000 for the six months to the end of April. The group described trading at the start of its second half as ‘solid’.
• Amazon will create an extra 1,000 jobs in the UK and has described life after the EU referendum as ‘business as usual’. The new roles come on top of an already pledged 2,500 extra jobs, to be split between London, Cambridge, Edinburgh, Manchester, and Leicestershire.
LEISURE TRAVEL & HOTELS:
• Areas including the Lake District, Cambridge, York, and Edinburgh are set to benefit from a boom in inbound tourist numbers as a result of a cheaper pound. Figures from 260-strong independent hotel group Best Western Great Britain suggest that bookings from countries such as the US and China jumped in the week after the referendum.
• Thomas Cook’s retail boss Kathryn Darbandi believes that the travel giant’s high-street stores will exist ‘for many years to come’. Speaking as Thomas Cook prepares to mark the official 175th anniversary date this month, Darbandi said: ‘Yes, in 20 to 30 years’ time, shops will have evolved, but I don’t think it will change how important the people are and the product knowledge; that’s why agents are there.’
• India’s domestic airline passenger growth of 18.8% was the fastest in the world, beating Russia, China, and the US.
• Lionel Messi has been sentenced to 21 months in prison and fined €2m for tax fraud, although it is unlikely that he will go to jail.
• Samsung is anticipating its most profitable quarter in more than two years as a result of strong sales of its flagship S7 line of smartphones. The South Korean tech giant estimates operating profit will rise 17.4% to 8.1tn won (£5.4bn) for the April to June period, bucking the trend of falling profits and market share.
FINANCE & MARKETS:
• Fed minutes suggest policy-makers Stateside will wait to judge impact of Brexit vote before raising rates further. The minutes say ‘members generally agreed that, before assessing whether another step in removing monetary accommodation was warranted, it was prudent to wait for additional data on the consequences of the U.K. vote.’
• US trade deficit rose in May as exports fell whilst Chinese imports rose. The deficit was $41.1bn for May vs $37.4bn in April.
• US exports fell by 0.2% in May whilst imports grew by 1.6%.
• Demand for global air freight, a useful lead-indicator, is falling says IATA. It says ‘global trade has basically moved sideways since the end of 2014 taking air cargo with it. Hopes for a stronger 2016 are fading as economic and political uncertainty increases.’
• Sales of new cars fell by 0.8% in June this year in the UK vs the same month a year earlier. Brexit vote has not yet had an impact. The SMMT says ‘it is far too soon to determine whether the referendum result has had an impact on the new car market. The first six months saw strong demand at record levels but the market undoubtedly cooled over the second quarter.’ It concludes ‘it’s important government takes every measure to restore business and economic confidence to avoid the market contracting in the coming months.’
• World markets: UK shares fell yesterday & Europe was down. US shares were higher & Far East is up in Thurs trade
• Oil price a little higher at around $48.95 per barrel
LEISURE & ECOMOMIC NEWS – BREXIT SHOCK:
• Six property funds have now frozen redemptions. For better or worse, holders are locked in for the ride. The frozen funds are operated by Henderson, Threadneedle, Canada Life, M&G, Aviva and Standard Life. In addition, BlackRock has raised redemption charges to 5.75% from 2.00%.
• German finance minister Wolfgang Shaeuble has said that EU countries should not ‘race to the bottom’ in terms of corporate taxes. The idea that the EU would tolerate a major tax haven on its doorstep is somehow not credible.
• IEA says the government itself is partly to blame for the uncertainty post the Brexit vote. The IEA says ‘it is not clear whether the Chancellor has abandoned his fiscal framework entirely or merely thinks he will not hit it. The government needs to get a fresh team in place and outline clear policy choices and create institutions to deal with the process.’
YESTERDAY IN A NUTSHELL – SEE LIVE TWEETS ON WEBSITE:
• Some of our morning tweets: Chairman of Greene King Philip Yea has bought 10,000 shares in the company at a price of 747p per share
• McDonald’s Corp won a legal case in EU General Court to stop other operators from using ‘Mac’ or ‘Mc’.
• Food prices saw their biggest drop for over a year last month of 0.8%, adding to what BRC calls ‘extraordinary run of deflation’
• Sterling down at 128c will make a real difference to holidaymakers on the ground. Brochure prices won’t rise till next year.
• Sterling has dropped by 14% against the US$ since 23 June and by a still-meaningful 12% against the Euro
• Sterling has hit a new 31-year low against the dollar as markets adjust to the uncertainty surrounding the UK’s exit from the EU.
• Oil trader Vitol has said that the 2016 rally in the oil price has now run its course. Boss Ian Taylor says it should touch $60 next year
• The New York Fed’s William Dudley has said that the Fed can remain patient when it comes to raising interest rates.
• Later Tweets: Catch up with Langton’s latest 60 second pieces, Brexit, small ticket spending etc. here http://www.langtoncapital.co.uk/recent-articles/
• Brexit. The answer is ‘we don’t know?’ Works for all known questions. Uncertainty overhands, FTSE250 drops further
• Massive divergence between performance of FTSE100 (dollar stocks, etc.) and FTSE250 (UK PLC). Latter in freefall
• Milk price pretty low in UK – and not influenced by fall in Sterling. Good for manufacturers such as Premier Foods
• Sterling drop getting serious. Big 2-way pull in UK (unique in world) between deflation & inflation.
• Sterling drop should be good for MERL. UK inbound visitor numbers rising & overseas translation impact positive
• Service sector PMI at 3yr low. Could have been worse but only 10% of responses were post the Brexit vote on 23rd
• Open ended trusts surely not fit-for-purpose when it comes to property investment? Holders at 3 funds now locked in for the ride
• Strikes in UK, are they always public sector, doctors, teachers, tube staff? Job security & gold-plated pensions not enough, then?
RETAIL NEWS WITH NICK BUBB:
• Marks & Spencer: With the City looking for a LFL decline of at least 4%, despite weak comps, Marks & Spencer was expected to have gloomy news about Q1 Clothing sales to report today…But the news is horrible, with Clothing and Home LFL sales nearly 9% down in the 13 weeks to July 2nd. And Food is also rather disappointing, with LFL sales nearly 1% down, although the new CEO Steve Rowe trumpets that “our Food business continues to strongly outperform a deflationary market”. Oddly enough, however, because “a key part of our recovery plan for Clothing & Home is lowering prices and reducing promotions” M&S seem quite happy with their Q1 performance and say that “Full year guidance remains unchanged. We continue to manage the business for the challenging market environment”. Conf call at 8.15am
• Sports Direct: The much-awaited finals for y/e April today from the beleaguered Sports Direct show that underlying PBT fell 8% to £275m, which is disappointing, as the company readily admits, but much as expected. In terms of the all-important outlook statement, Sports Direct duck the issue, however, saying that although “trading since the start of May and leading up to the EU referendum was broadly in line with management expectations”, the current outlook for FY17 is “somewhat uncertain and therefore hard to predict”. No doubt the analysts at the invitation-only meeting at 9.30am will try to prise more from CEO Dave Forsey about the outlook, as well as the plans for a share buyback programme. It is not clear whether Mike Ashley will attend the meeting, but the company has said that he has no intention of taking the company private…