Langton Capital – 2016-07-12 – Brexit, put trading, holidays, inbound tourists & other:
A Day in the Life:
So I was a little disappointed that I didn’t get asked to participate in the Hull Wave – see Wave.
However, on reflection, that’s probably a good thing for all concerned and, though I was in the building behind the participants in the second picture only yesterday for a graduation, it wouldn’t have fit in with my schedule.
Anyway, the political situation appears to be somewhat clearer. And, whilst some outcomes (‘I’m sorry, he died’ for example) are not positive, it’s to be hoped that that’s a good thing.
However, we should probably get things in perspective because, in the same way that there are few situations that cannot be made worse by hitting your thumb with a hammer, there are few that can’t be made better by having a nice cup or tea, a pint down the pub or the appointment of someone as PM who, frankly, isn’t Andrea Leadsom.
But that’s not to say that the situation is resolved. We haven’t heard a convincing financial or social argument for exit and we seem to be locked into the carriages of a crashing train with the would-be driver(s) saying that the can’t touch the brakes because it would be undemocratic.
I mean what will it cost, for example, to dump 40yrs worth of legislation and re-write a billion plus words with a slightly different slant? And what will it cost in terms of civil service manpower, what will happen to taxes & benefits as a result?
If the bull argument remains ‘well it might not be a complete disaster’ then I despair, I really do. On to the news:
RECENT WEBSITE ARTICLES:
• Recent notes – here
• Ongoing tweets, older emails found – here
PUB, RESTAURANT & DRINKS PRODUCERS:
• Brexit vote & the pubs & restaurants, summary feedback. Patchy & inconclusive at this stage – but not bad.
o Comments include 1% up, 6% up, no discernible impact, London units doing well, football a bigger issue, wet led pubs in the North held up well until Iceland etc.
o Macro figures re retail in general seem to be worse, suggesting the sample may not be representative.
o Some negative comments re uncertainty in hiring, status of EU nationals etc.
o Issue of capacity is unresolved. Plenty of casual dining units being built but very few, if any, being knocked down.
• At the end of the day, the macro indicators must equal the total of the micro indicators yet this doesn’t seem to be happening. We should have further data later in the month. JDW, whose chairman Tim Martin has been resolutely in favour of Brexit, will update on trading tomorrow.
• Domino’s Pizza Group has announced that Rachel Osborne will be chief financial officer and an executive director of the company from mid-October. Ms Osborne is a chartered accountant currently working as finance director of group commercial and enterprise at Vodafone.
• Starbucks will introduce a 5% to 15% wage increase for workers at all its US stores in October as the coffee giant looks to ‘strike a balance’ between profit and responsibility. The world’s largest coffee chain currently employs 150,000 workers in its US stores.
• The ALMR says that the government must produce a ‘road map to lock in competitiveness’ now that Theresa May has been confirmed as the next Prime Minister. The trade body added in a statement: ‘Above all else, we call on Theresa May as one of her first acts as the new Prime Minister, to guarantee non-UK EU nationals, many thousands of whom work in our pubs, bars, hotels and restaurants, to be granted the right to remain in the UK both before, during and after the negotiations. We need a clear Brexit employment strategy.’
• Better burger chain Byron has secured a new £12m banking facility as part of plans to reach 100 restaurants (from its current 65) in the next three years, writes MCA.
• Rabobank analysts have said last month’s Brexit will have ‘critical implications’ for the drinks industry, while uncertainty over future trade agreements will ‘loom in the longer term’.
• Waitrose is to pay its UK smaller suppliers over a maximum of 7dys. The step will be phased in over 2mths.
LEISURE TRAVEL & HOTELS:
• InterContinental Hotels Group has credited a thriving ‘mainstream’ sector as the key to its success in the region, represented by its Holiday Inn and Staybridge Suites brands.
• A petition of nearly 200,000 people on the subject of term-time holidays means it will be debated in the Commons. Flight bookings to Britain since the referendum are already up 10% on the same period last year, according to travel data specialist Forward Keys, while China’s biggest tour operator has reported a 200% rise in searches for UK holidays.
• Serviced apartment operators are expanding their businesses via mixed-use developments that combine serviced offices and apartments, according to a report by HVS. Growth has been particularly strong in the UK, Germany and France. Around 45% of new supply is based in the UK, with 30% in Germany.
• Research from Euromonitor suggests travel and tourism demand could grow by 4% by 2020, although Brexit uncertainty might hit visits to the UK. Euromonitor International predicts 2.3 million less visitors to the UK during the 2015-2020 period as a consequence of leaving the EU.
• Nintendo shares jumped again on Monday, meaning some $7.5bn (£5.8bn) was added to the game and console maker’s market cap as investors responded to the success of Pokemon GO. The game, which boasts aspects of augmented reality and allows users to explore their real life surroundings in search of pokemon, marks Nintendo’s first foray into the smartphone market. It is now on more Android phones than dating app Tinder and its rate of daily active users has been neck and neck with social network Twitter, according to web analytics app SimilarWeb.
FINANCE & MARKETS:
• The IMF has warned that Italy faces two decades of stagnant economic growth after the country estimated growth this year at under 1%. Italy might not reach pre-crisis levels until 2025, by which point its neighbours will be 20% to 25% bigger than 2008 levels. Italy is the eurozone’s third largest country but also has 11% unemployment, a banking sector crisis, and a level of government debt second only to Greece.
• The S&P 500 set intraday and closing highs on Monday on the back of strong monthly US jobs report data, while European shares rose as Theresa May emerged as the next Prime Minister. May will officially assume the role from tomorrow, providing some much needed certainty for investors and politicians.
• World markets: UK & Europe higher yesterday, US also up to new records. Asian markets higher in Tues trade
• Oil rallying a little but down over the last 24hrs. Brent currently trading at around $46.30 per barrel
LEISURE & ECOMOMIC NEWS – BREXIT SHOCK:
o Leadsom exits leadership race, becomes latest Brexiter to jump ship. Leaves May (a remainer) to pick up the pieces. Per Leadsom ‘business needs certainty’. One perhaps should just take a second to reflect on the hypocrisy of that statement.
o Leadsom, Gove, Johnson, Farage & soon Cameron all on holiday.
o On a brighter note, a thin sliver of uncertainty has been removed. Theresa May will be PM tomorrow afternoon
o British Govt. has said that it believes it can trigger Article 50 without getting parliamentary approval. Some 1,000 UK lawyers had written to current PM David Cameron to say that lawmakers in parliament should decide whether to trigger the exit.
• The real economy:
o Markit has said that the UK economy is facing its stiffest conditions in four years. Business is nervous. Markit reports its ‘survey saw widespread concerns that a ‘Brexit’ vote will lead to prolonged uncertainty — both politically and economically — the loss of business to key European markets, and a potential recession in the UK.’
o Interest rates likely to fall later this week. Moneyfacts say savers (who they?) should brace themselves for even tougher conditions
o Euromonitor Internations (see above) says we’ll have fewer inbound tourists as a result of leaving the EU
• On a brighter note:
o FTSE100 (US$ influenced) hit highest level in 11mths yesterday on relief re retirement of Andrea Leadsom
YESTERDAY IN A NUTSHELL – SEE LIVE TWEETS ON WEBSITE:
• Some of our morning tweets: Greene King is hoping to raise around £30m from the sale of 90 of its pubs, mostly tenanted
• Questor has deemed Wetherspoons shares a ‘sell’ on casual dining competition, Brexit concerns & margin pressure
• GfK has reported that consumer confidence has taken the sharpest dive in 21yrs in the wake of the Brexit vote on 23 June.
• GfK reports confidence among ‘remainers’ has collapsed by 13 points whilst Brexiters’ confidence has fallen by only 5pts.
• Shops over the weekend felt quiet. Might be the weather, might be the tennis, might be the football but could be Brexit uncertainty
• GfK says 60% of respondents expect economic outlook to worsen in the next 12mths. Some 20% believe it will improve
• Lates market now in full swing. Could be sticky given uncertainty & drop in value of Sterling
• US added 287k jobs in June, recovering from disappointing May. Could put rate rise back on the cards.
• The UK’s trade deficit increased in May as exports fell £2.1bn to £23.7bn and imports fell £1.6bn to £33.5bn
• IMF cuts Eurozone growth estimates for next 2yrs, partly in response to Brexit concerns
• Sterling is now the weakest major currency in the world. It undershot the Argentinian peso last week
• Germany’s FDP party has paid for a vehicle to circle central London advising entrepreneurs to ‘keep calm & move to Berlin’
• Other Tweets: Oil price at 2mth lows as dealers adopt more of a risk-off approach to pricing. Vitol suggests rally over, could hit $60 next year
• Sugar price up 73% over last 12mths. OJ +52%. Sweet tooth or problems with harvests? Or both?
• South Korea wants free trade agreement with UK. Given Samsung, Hyundai etc. that’s hardly surprising.
• Norway says won’t negotiate with us till Article 50 been triggered. Yes, Norway. Residual belief it won’t be triggered
• John Lewis. Finger on pulse, decent bellwether, says is concerned we could move from a ‘political crisis to an economic crisis’
• GNK to sell 90 pubs. Will test the market. Will also give us a feel as to funding availability for would-be purchasers
• Lates market kicking off. Could be tricky. Good thing Turkey capacity slashed & Western Med nearly full. Nonetheless, Brexit unhelpful
• GfK, BDO, Lloyds, B of England, J Lewis say things are dicey. Andrea Leadsom says ‘banish pessimism’, Michael Gove ‘we’re sick of experts’
• Is Brexit calamity Boris’s Gallipoli moment? Thirty years in the frigid political wilderness beckons. Perhaps 20 with good behaviour?
RETAIL NEWS WITH NICK BUBB:
• BRC-KPMG Retail Sales survey for June (5 weeks to July 2nd): We flagged yesterday that we thought that the outcome of the overnight survey was likely to be subdued, and so it was, with overall LFL sales down by 0.5% in June, exactly reversing the modest rise in May, albeit against a much tougher comp. Food Retail sales look to have been down again, as per usual, by between 1% and 1.5% LFL, so the disappointment was that Non-Food barely saw any LFL sales growth overall, despite Euro 2016 etc. Ironically, the best-performing sub-sector (helped by some calendar timing shifts) was Furniture, notwithstanding the bashing that the Furniture retailers like DFS and ScS have taken on the stockmarket over the last couple of weeks, post-Brexit. The worst sub-sectors last month were Clothing and Footwear, with David McCorquodale, the Head of Retail at KPMG, noting that “sales of
• ASOS: The Q3 update today is even stronger than expected, with constant currency sales up 26% (30% at actual prices), albeit gross margins are 180bps down. CEO Nick Beighton says “Our full-year retail gross margin guidance of up to 50bps of investment remains unchanged and we remain confident in delivering current market PBT expectations for the year”. 8.30am conf call.
• Hotel Chocolat: Revenue for y/e June increased 12%, “slightly ahead of market expectations”. Since the company’s May 2016, IPO, the group’s new Father’s Day campaign ‘Better than Socks’ performed particularly well.
• Today’s Press and News: The front pages today are full of photos of the advanced coronation of Theresa May as PM, with effect from tomorrow evening, and the speculation about the shape of the new Cabinet (the Foreign Secretary Philip Hammond is expected to swap jobs with the discredited Chancellor George Osborne). In other job news, the main focus in the Business pages is on the announcement that Marco Gobbetti will take over as CEO of Burberry next year, leaving his position at the helm of French luxury brand Céline, with the beleaguered Christopher Bailey to become President and Chief Creative Officer: “Burberry fashions a new future as Bailey steps back” (the Times) and “Burberry investors question Bailey’s role” (the Telegraph). In terms of today’s news, Headlam, the carpet wholesaler, has warned that it will be putting up Belgian carpet
• News Flow This Week: Tomorrow brings us the Burberry Q1 and the Steinhoff/Poundland “PUSU” deadline…Then on Thursday we get the SuperGroup finals, the Burberry AGM, the Mothercare Q1 and the Halfords Q1, plus the MPC’s decision on cutting interest rates…