Langton Capital – 2016-07-19 – DP Poland, confidence, economy, demographics & other:
A Day in the Life:
Well it looks as though schools are starting to break up.
Traffic’s lighter and the number of out-of-office replies has begun to mushroom suggesting that much of the UK is heading to the beach and, with the sun shining & the mercury rising, that’s beginning to sound like a plan.
Langton will be away from later in the week. All being well, internet connection permitting etc., a shorter email will be going out for the next couple of weeks or so. On to the news:
RECENT WEBSITE ARTICLES:
• Recent notes – here
• Ongoing tweets, older emails found – here
DP POLAND H1 UPDATE:
• SSP updates on Q3, says performance ‘in line with the expectations set out in our 2016 H1 announcement’
• SSP says ‘on a constant currency basis, total Group revenues for the period from 1 April 2016 to 30 June 2016 increased by 4.8%, with like-for-like sales growth of 3.0% and net contract gains of 1.8%, compared with the same period last year. At actual exchange rates, given the weakening of Sterling against major European currencies compared with the same period in the prior year, total Group revenues increased 9.0% year-on-year.
• SSP says ‘LFL sales in Q3 in the UK were robust and continue to benefit from passenger growth in the air sector.’
• SSP says ‘in Continental Europe the picture remains mixed, with good performances in Spain and a weaker trading environment in France and Belgium resulting from the on-going impact of the geopolitical incidents in Paris and Brussels and industrial action. In North America, good like-for-like sales growth is being driven by passenger growth in the air sector. In the Rest of the World, like-for-like sales continue to be impacted by the fall in passenger numbers in Egypt and the on-going slowdown in passenger growth in China.’
• Re outlook, SSP says ‘H2 has started in line with our expectations. Whilst a degree of uncertainty always exists around passenger numbers in the short term, we are well placed to continue to benefit from the structural growth opportunities in our markets and to create further shareholder value.’ The group will be a net beneficiary of weaker Sterling
• DP Poland updates on Q2 & H1 trading, says LfL sales +28% in H1 with system sales up by 57% and 5 new stores opened
• DP Poland H1 update: Says entered 2 new cities in H1 with pipeline of store openings in place for H2. Some 69% of deliveries are online
• DP Poland H1 update: Group now has 17 corporately managed & 11 sub-franchised units operating in 6 Polish cities
• DP Poland H1 update: Group has achieved 15 consecutive Qs of double-digit LfL growth. Sub franchisees growing with JAR now at 2 units & HLM at four
• DP Poland H1 update: CEO Peter Shaw says ‘strong like-for-likes coupled with the better than anticipated sales performance of our newer stores delivered robust growth in total system sales. Growth in sales, corporate store EBITDA and commissary contribution underpin our confidence in our accelerated store roll-out programme. In the first half we opened 5 Domino’s stores and added 2 further cities. We have a pipeline of store openings in place for the second half in both existing and new cities.’ He concludes ‘our franchisees are active in growing their store numbers and I anticipate further sub-franchise openings and acquisitions in the near future.’
PUB, RESTAURANT & DRINKS PRODUCERS:
• NPD reports decline in consumer confidence though figure remains positive. Numbers refer to Q1 & are rather historic. Discounting down a little for the second consecutive quarter. Some 16.8% of products sold were no a deal, down from 17.6% in Q1 last year.
• NPD says ‘we witnessed the comeback of afternoon snacks, which grew traffic by +5%’ in Q1 this year.
• NPD highlights growth of ‘on-the-street consumption, which rose by 10% in traffic [in Q1] compared to a year ago.’
• Penta Capital, which counts Geronimo Inns, EAT, and La Tasca among its previous investments, has acquired a major stake in Seafood Pub Co for £18m. The Lancashire-based group currently has eight restaurants and has ambitions to grow to 20 sites over the next three to five years, focusing on the North Yorkshire, Cheshire, and Lake District regions.
• Sainsbury’s is going up against Amazon by trialling a new one-hour grocery delivery service in Wandsworth, London, via a new iPhone app called ‘Chop Chop’. Deliveries cost £4.99 for busy shoppers within three miles of Wandsworth looking to get up to 20 items delivered.
• The Institute for Fiscal Studies says that young people have suffered a drop in income since the financial crisis, while pensioners have enjoyed a big rise. Between 2007/8 and 2014.15, incomes for those aged over 60 grew by 11% when measured before housing costs, compared to no change for those aged 31 to 59, and a 7% fall for those aged 22 to 30. The think tank adds that living standards are likely to get worse, in its view, as a result of leaving the EU.
LEISURE TRAVEL & HOTELS:
• US carrier Delta is dropping capacity on its US-UK routes by 6% this winter, citing the fall in the value of sterling and economic uncertainty resulting from the EU referendum result. Delta’s latest results show a decrease in unit revenues, with CEO Ed Bastian noting that ‘the large year-on-year savings driven by lower fuel are largely behind’ the airline.
• The aftermath of the attempted coup in Turkey last Friday appears to be calming down, according to the FCO, although the situation remains ‘potentially volatile’.
• Netflix shares fell 13% to $85.90 after adding 1.68 million users in the three months to June compared to forecasts of 2.5 million. Subscribers are thought to have been put off by planned price rises.
• Yahoo provided no update on the potential sale of its core internet business as the group suffered a $440m (£332m) loss in Q2.
FINANCE & MARKETS:
• Economy post Brexit:
o B of England’s Martin Weale says ‘nation’s income & thus people’s incomes, are likely to be reduced as a result of the choice made on 23 June’
o Weale says incomes may fall by c3% to c12% (a wide range).
o Weale says trade & competitiveness may be harmed. Confidence also hit. Quotes grim GfK survey. Investment & jobs may fall.
o Weale says ‘significant proportion’ of firms planned to cut investment & c25% would put a freeze on new hires
o Lower exchange rate may help & Ms Leadsom insists we should ‘banish pessimism’
• Dealing with the world post Brexit:
o IEA says foreign takeover bids should not be subject to extra scrutiny in post Brexit world. ARM deal looks to be waved through. The IEA says ‘the concept of a foreign takeover is largely meaningless in the modern world. The idea that the Prime Minister or the Secretary of State for BEIS should be determining what takeovers can occur based on the nationality of companies or owners and some undefined concept of the ‘national interest’ is absurd. It’s unclear why we should think of a foreign takeover differently from foreign competition putting an existing UK company out of business.’
o Canada has said that it will focus on driving a deal with the EU as a whole before it considers striking one with the UK. Brexiter Liam Fox had told the Sunday Times he had opened “very fruitful” trade talks with the country.
o Accountants PwC say that up to 100k jobs may be lost in the financial services sector & c950k across the UK as a whole
o SocGen suggests that London commercial rents could fall by 24%. It says yields could widen, values drop by perhaps a third
o London house prices, at 12x the average London salary, could take a knock. SocGen says relocation to EU countries could lead to forced selling.
• On a brighter note:
o An Epos Now poll (of 500 hospitality businesses) has suggested that 64% remain optimistic about the UK’s future ex-EU. Hospitality operators are an optimistic bunch and tend to put a brave face on things. Their businesses are located in the UK & they have little choice other than to remain here. Epos Now says CEO Jacyn Heavens reports ‘I’m confident that innovative businesses can continue to do well in what are now unpredictable times. The Brexit vote will focus minds and ensure businesses concentrate their attention on remaining resilient and robust.’ She concludes ‘businesses above all need to ensure they have liquidity and a good credit line to make the most of the opportunities that lie ahead.’
• Other news:
o World markets: UK and US up yesterday but Europe down. Far East lower in Tuesday trading.
o Oil price lower. Trading at around $46.80 per barrel.
YESTERDAY IN A NUTSHELL – SEE LIVE TWEETS ON WEBSITE:
• Some of our morning tweets: Conviviality FY numbers, says sales +137% (on acquisitions) to £864.5m with adjusted EBITDA +135% at £30.2m
• Conviv. FY: Adjusted PBT +124% at £21.7m & diluted EPS +27% at 14.2p. Paying 9.5p dividend (2015: 8.3p)
• Conviv. FY: Says purchase of Matthew Clark is ‘transformational’ & adds that Bibendum (post y/e) integration is ahead of expectations.
• Deliveroo and Uber will soon be joined by Amazon in the London restaurant delivery space
• MCA’s poll of 1,000 in days post EU vote indicates 22% of consumers expect to scale down spending on eating out
• Resolution Foundation suggests that Millennials may earn less than their predecessor generation, Generation X
• More than one in five pubs (21%) are in ‘significant distress’ compared to 17% a year ago according to Begbies Traynor
• Online travel agent Lowcost Travel Group, which has 27,000 customers and 110,000 forward bookings, has ceased trading
• Markit will publish a one-off ‘flash’ PMI on Thursday covering the period following the UK’s decision to exit the EU.
• EY Item club says UK faces a “severe loss of momentum” after the vote to leave the EU. It cuts 2017 forecast from 2.6% to 0.4%
• EY says impact of EU exit will last until at least 2018. Cuts 2018 forecast from 2.4% to 1.4%. Sees loss of wealth in 100s of billions
• Deliotte has found that 82% of CFOs surveyed expected now to cut capex next years. Capex = lead indicator for jobs
• Deloitte says ‘perceptions of uncertainty have soared to levels last associated with the euro crisis five years ago.’
• B of England says a ‘sledgehammer’ may be needed to support the UK economy. Banishing pessimism may be insufficient.
• B of England’s Gertjan Vlieghe says lower interest rates alone may be insufficient to stabilise the UK economy
• Later Tweets: Coffee, cocoa, OJ, sugar prices still strong, wheat, corn, red meats & milk in the UK still weak
• Yen-based bid for ARM => spec Nissin may come back to take c80% of Premier Foods that it doesn’t already own. Wd free McCormick to re-bid
• TCG shares mired in Nice, Turkey, Tunisia worries. But bid for ARM shows overseas buyers may be sniffing the UK market
• TCG got issues re Turkey, Nice, geo-political issues etc. but >>100k Low Cost Holidays holidaymakers will need to go somewhere
• Germany considering offering citizenship to young Brits. How long before we get a naturalised Brit/German in their national team?
• Millennials set to be poorer than Gen X as the Baby Boomers rob both of them blind. Final salary pensions, £2k houses etc.
• MCA says 22% of consumers will cut spending on meals etc. post Brexit vote. May just be churlish Remainers – but that’s all it takes…
RETAIL NEWS WITH NICK BUBB:
• Today’s Press and News: The good reception to yesterday’s Conviviality results gets a positive write-up in the FT and Questor column in the Telegraph says the shares are a Buy. The Yorkshire Post reports loyally that Pepkor UK is due to open its third GHM! store today in Sheffield (GHM! stands for Guess How Much!). The FT website notes that France’s competition authority have at last approved Fnac’s £900m takeover of rival Darty, after the two companies agreed to sell six stores in the greater Paris region. And the Guardian leads its front page with an expose on the delivery company Hermes: “Couriers delivering packages bought online paid below the living wage”.
• News Flow This Week: Thursday brings the Howden interims, the AO.com Q1 update and the ONS Retail Sales figures for June.