Langton Capital – 2016-10-05 – DP Poland, RBG, Tesco, economic uncertainty & other:
DP Poland, RBG, Tesco, economic uncertainty & other:
A DAY IN THE LIFE:
So where’s engineered obsolescence when you really need it?
Well I suppose obsolescence is there (time to chuck out your VHS recorders, floppy disks etc.) but these things don’t just break like they used to so, for people who hesitate to throw out things that work perfectly well, there’s a tendency to acquire a stack of old laptops, a drawer full of old mobile phones and a box full of assorted cables and adapters, none of which are in day-to-day use but any of which may be necessary for the continued operation of the aforementioned piles and drawers full of redundant gadgets.
Perhaps we should just shut our eyes and fill the bin.
But there may be some grainy old digital photos, Word Perfect documents, Lotus 1-2-3 spreadsheets or whatever tucked away somewhere, mightn’t there? On to the news:
DP POLAND ANNOUNCES TOP-UP PLACING OF SHARES:
• DP Poland has announced that it has conditionally placed 6.67m shares at 48p per share (a 1.3% discount).
• DP Poland reports the £3.2m (gross) raised will be used to accelerate its opening programme. The group says it had cash at 30 June of £5.3m but states that momentum has built in its new openings and cash can now be deployed more rapidly.
• DPP says ‘the net proceeds of the Placing are expected to provide the Company with the funds required to open an additional 20 stores’. This is ‘over and above current market expectations’.
• DPP raises store target from 80 to 100 by 2020. It says placing proceeds ‘will either be used to fund corporately-owned stores, or will be loaned to high-calibre store managers to enable them to open their own sub-franchised stores.’
• DPP says ‘has continued to trade strongly in Q3 & is trading in line with market expectations in respect of the current financial year.’
PUB, RESTAURANT & DRINKS PRODUCERS:
• JDW yesterday bought back a material 1m of its own shares for cancellation at 955p per share
• The ALMR has teamed up with the BII, Guestline, Inapub, and Stay in a Pub in order to highlight the growing importance of pub accommodation. ALMR Chief Executive Kate Nicholls said: ‘Pub accommodation is a hugely important, but perhaps overlooked, element of the licensed hospitality offering. It was one of the standout success stories of this year’s ALMR Christie & Co Benchmarking Report, showing the highest level of like-for-like growth across the whole of licensed hospitality.
• ‘There is a great deal of potential for pub accommodation to be a very lucrative revenue stream and the ALMR is looking forward to promoting improved levels of best practice and an increased focus on rooms for guests. We are looking to reframe the discussion around pub accommodation to promote staying in a pub as a feasible competitor to hotels.’
• New Home Secretary Amber Rudd tells Tories foreign worker (and student) numbers will be limited going forward
• Premium Bottled Ale September report suggests pricing down 0.7% with bigger moves at ASDA (-3%) & Morrison’s (-1%)
• PBA Sept report suggests number of lines on promotion down by 3.5% with uptick in promo activity at ASDA & Waitrose
• Property Week suggests London has lost its global property crown to New York ‘following a turbulent year that saw investment in the UK capital plummet.’
• AlixPartners growth co index shows newcomer Breakfast Club as the fastest-growing operator of any size. It says the all-day London-based business delivered annual compound Profit growth over three sets of annual accounts of 147.4%. The operator ‘now comprises nine outlets, including its biggest to date at Canary Wharf, plus a regional outpost in Brighton.’
• AlixPartners says UK out-of-home food and drink market is now estimated to be worth in excess of £80 billion.
• AlixPartners says ‘many expanding companies take the opportunity to collaborate with private equity (PE) groups who…are a significant partner in the eating and drinking-out market. A feature of PE players in this market is that many deliver deep sector knowledge and experience, and typically have access to a raft of senior operators, or ‘grey hairs’ through far-reaching contacts and previous investments. They therefore add substantial value not just through finance and funding, but also operations, property and managing fast growth and site rollout programmes.’
• British gin is a ‘global phenomenon’ as exports have surged in value by 166% and exports to the US have jumped by 533% since 2000, according to the WSTA’s. The value of British gin in its domestic market in the on- and off-trade rose by 21% and 12% respectively in the last year, while last month gin sales in the UK broke the £1bn barrier for the first time, although the authors of the report warn that gin makers must stand up for their interests in upcoming Brexit talks.
• Micro-distilled spirit Our/London has agreed a distribution partnership with Hackney Downs-based distillery Hi-Spirits. Our/London vodka is 37.5% ABV, with an RSP of £19 for a 350ml bottle. Dan Bolton, managing director of Hi-Spirits, said: ‘Our distribution expertise will make this authentic, premium vodka much more widely available. Our/London taps into long-term trends in both the on- and off-trade for premiumisation, authenticity and provenance and consumer’s increasing preference for quality over quantity when enjoying drinks.’
• Krispy Kreme Doughnuts is consolidating ownership on both sides of the Atlantic by buying Krispy Kreme UK from Alcuin Capital. The deal is reportedly in the same range as the pulled IPO, which would have valued the business at between £187m and £212m.
• Boxpark Croydon has released its full line-up of 35 food and drink businesses, including Bukowski, MEATLiquor, and Thai Express. Agee Johnston, Boxpark’s retail director said: ‘We are excited to bring a selection of street traders, independents & established operators offering cuisines from all over the world to Boxpark Croydon where people can eat, drink and play.’
• Simon Hopkins and Leon Passlow, founders of scam company Digicams, have been jailed for supplying illegal broadcasts of Premier League football to pubs. The pair must also pay close to £1m for the scheme, which involved obtaining Sky and other viewing cards using false names and addresses and selling them on to commercial businesses including hotels, pubs and betting shops.
• London’s new Night Tube service is thought to have encouraged a 21% increase in late night restaurant bookings, according to Bookatable.
• Enterprise Inns has invested more than £2.5m in pubs in Devon and Cornwall this year, including £200,000 put into The Globe in Samford Peverell.
• Greggs has cautioned that ingredient prices will rise next year, partially as a result of the weaker pound, but will ‘fight hard to mitigate cost pressures’. Chief executive Roger Whiteside left room for price changes in future, especially if rivals raise their prices. ‘We will watch the market to see what room there might be for price movement.’
• Over 1.5 billion single-use carrier bags have been saved by Tesco customers, meaning a 72% fall in the use of plastic bags in its stores since the introduction of the 5p bag levy.
MORE ON REVOLUTION:
• Revolution Bar Group says it is well-positioned at the ‘premium’ end of the on-trade to take advantage of the trend towards fewer, bigger nights out. The group linked its run of 12 consecutive quarters of LfL sales growth to a shift towards higher end, higher margin cocktails, higher spend per head, more food, and broader key trading hours.
• Shares in RBG are down 20% from its October ’15 IPO price of 192.50p, at 154p, modestly valuing the group on a forward PE of 9.27 times and giving its shares a well-covered 3.65% dividend yield.
• Operationally, its large-format c6000 sq ft layout has the potential to roll out across secondary towns and more affluent suburbs, while its Revolucion de Cuba brand, which grows from 9 to 13 sites in the next few months, gives expansion plans added momentum. Since the bar group is cash-generative, profitable, and debt free, it can finance new units, which have an RoI of 38%, while investing in existing sites.
• Revolution’s pipeline of new sites has grown to 11 properties with 140 potential units being looked and its management has expressed a desire to grow this pipeline until it has 2-3 years of growth mapped out. Future sites will have similar pre-opening and refit costs to existing sites (of c£200,000 and £1.5m, respectively).
TESCO H1 NUMBERS:
• TSCO says prices 6% lower than they were 2yrs ago. Consumers (and the hospitality industry) should have benefited.
• Tesco H1 numbers, says made ‘strong H1 progress’ and has a ‘clear plan to create long term value’
• TSCO H1: Group sales +3.3% at £24.4bn, normalised operating profit +60.2% at £596m, debt down 49% at £4.4bn.
• TSCO H1 UK LfL sales 0.6% and Group like-for-like sales growth of 1.0%. UK volumes +2.1%; UK transactions up 1.6%.
• TSCO growth puts spotlight arguably on less good SBRY numbers (MRW was positive). In UK Tesco sees ‘all key customer metrics improving relative to the market’. Group has a ‘more secure balance sheet [with] net debt reduced by further £0.8bn since year-end’.
• Tesco says it is rebuilding trust and is now the ‘most improved retailer in terms of customer recommendations’. The group aims to deliver 3.5% to 4.0% operating margin by 2019/20. CEO Dave Lewis reports ‘we have made further strong progress in the first half, with positive like-for-like sales growth across all parts of the Group as we re-invest in our customer offer whilst rebuilding profitability in a sustainable way.’ He says ‘we are more competitive across our offer. Prices are more than 6% lower than two years ago, availability and service have never been better and our range is more compelling.’
• Tesco concludes ‘whilst the market is uncertain, we have made significant progress against the priorities we set out two years ago, stabilising the business and positioning us well for the future.’
LEISURE TRAVEL & HOTELS:
• Ryanair says it will cut fares by up to 12% in the next six months after seeing traffic rise by 13% to 10.8 million passengers for September.
• The number of incidents of ‘unruly behaviour’ on airlines increased sharply last year to almost 11,000, according to IATA. Many cases involved alcohol being smuggled onto flights, and IATA CEO Alexandre de Juniac wants more governments to ratify the Montreal Protocol 2014, which helps ‘close gaps in the international legal framework dealing with unruly passengers’.
• Egyptair’s weekly direct air link between London and Luxor was re-established on Monday following a suspension since May. Egyptian tourist chiefs are hoping the UK will lift its nearly year-old ban on flights to Sharm el Sheikh, which came into force in the wake of the terrorist downing of a Russian charter flight killing all 224 people on board. Flights from Germany resumed on Sunday while Turkish Airlines is to return with a service from Istanbul after an 11-month suspension. Eleven flights from Italy are also scheduled for October.
• Facebook has launched a Marketplace feature that could rival sites such as eBay and Craigslist. The feature will debut in US, UK, Australia & New Zealand. Facebook says ‘in recent years more people have been using Facebook to connect in another way: buying and selling with each other. This activity started in Facebook Groups and has grown substantially. More than 450 million people visit buy and sell groups each month.’
• Jeff Bezos of Amazon has displaced investor Warren Buffett as the second-richest living American
FINANCE & MARKETS:
• In an interview with the BBC’s Laura Kuenssberg, a shaky Theresa May accepted that most observers believe the UK will slow next year.
• Theresa May defends decision not to hold General Election despite the PM, its policies & its cabinet all having changed radically
• PM insists UK economy remains “fundamentally strong” despite downgrades, slower growth, uncertainty etc.
• Slack interest rates & 31yr low Sterling seen as a stimulus. Markets close near record highs. Ratings stretched if growth proves elusive
• IMF cuts forecast for UK economic growth from 1.1% (but raises forecast for this year to 1.8%). Says global outlook “weak and precarious”. Growth forecasts have been increased for Japan, Germany and Russia and India.
• B of England MPC member Michael Saunders has said that he has not decided how he will vote in November’s policy meeting
• Speaking to the Manchester IOD, Bank MPC member Michael Saunders says ‘following the June 23rd referendum vote to leave the EU, the MPC in early August faced a significant trade-off between the prospect of weaker growth and higher inflation.’ He says ‘the exact nature of the UK’s long-term arrangements with the EU and other countries remains uncertain at this stage. A few studies even suggest net economic benefits – especially if EU exit is accompanied by greater economic flexibility or a rapid expansion of trade from new agreements with other economies.’
• MPC member Michael Saunders sees slower growth, lowered competitiveness and weaker Sterling going forward. He says ‘most analysis, including the IMF and OECD, judge that EU exit is likely to have a modest adverse effect on UK potential growth over time (the next 15 years or so) – perhaps larger effects on some individual sectors – with considerable uncertainty over the scale and timing of these effects.’ Says Brexit could lead to reduced competitiveness, less labour mobility, lower levels of net inward investment etc. Says ‘the same factors, along with the UK’s persistent current account deficit, probably also imply a lower equilibrium level for sterling’s real exchange rate.’
• NIESR director Dr Angus Armstrong has said that triggering Article 50 could lead to a hiatus in investment. Dr Armstrong says ‘the process faces at least two important uncertainties: first, can the best outcome for the UK be achieved in the two-year window and, second, who are will be the UK’s main interlocutors?’ he says ‘some may say that it is best to start Article 50 as soon as possible so that it is competed as soon as possible. But the priority should be getting the best possible Brexit outcome for the UK not the fastest or politically most expedient.’
• NIESR fellow Jonathan Portes has pointed out that ‘we still don’t know what Brexit means for the two key issues of trade and immigration’. Dr Portes points out that ‘exports from the UK to the rest of the EU are about 1/8th (12.5%) of UK GDP; but EU exports to us are only 3% of EU GDP.’
• UK construction PMI rose to 52.3 in Sept vs expectations of a fall to 49.0. Any number > 50.0 implies expansion
• World markets: UK strongly up yesterday with Europe also higher. US down but Asia mostly up in Wednesday trade
• Oil price continues ascent, Brent Crude trading at around $51.30 per barrel
• UKIP leader Diane James steps down after 18 days in the job. What’s all that about, then? Bring back Boris, Farage, Gove, Leadsom etc.
YESTERDAY IN A NUTSHELL – SELECTION OF TWEETS, LIVE TWEETS ON WEBSITE:
• Revolution reports FY numbers, says seeing ‘strong growth, record profits, development to plan, progressive dividend’
• Revolution FY. PBT £7.1m (2015: £2.9m), EPS 12.1p (2015: 4.6p) with 3.3p dividend. Group opened 5 sites in H1. These are ‘trading well’.
• Revolution says ‘this financial year has begun well with recent trading robust with like for like sales of 1.8% in the first 12 wks’
• Gregg’s Q3 update. Says ‘trading in line with expectations’. Total sales up 5.6% for the 13 weeks to 1 October.
• Gregg’s Q3: Group says managed shop LfL sales up 2.8% for the 13 weeks to 1 October. Completed 145 refits, 103 new shops opened YtD.
• Private equity group Alcuin Capital has reportedly scrapped its £200m London flotation of doughnut-maker Krispy Kreme
• G1 has outlined problems of trading against ‘prevailing headwinds’. Says outlook impacted by uncertainty.
• Wagamama has set a long term target of 100 US sites and 50 within the next five years from its current total of 3 units, writes MCA.
• Sterling has fallen to a 3yr low vs Euro on back of confirmation of Brexit timing & Hammond comments re lack of deficit reduction
• UK manufacturing was strong in Sept on back of a lower pound. The Markit/CIPS PMI rose to 55.4 from 53.4 in Aug
• Chancellor Philip Hammond has officially dropped commitments to balance the UK budget saying he will spend on homes & transport
• Other tweets: Market flying as overseas earners, exporters benefit from Sterling’s fall. Inflation may be out there (but a long way off yet)
• Sterling near 31yr lows, boosts exporters, manufacturers. Gregg’s says ‘we anticipate some general industry-wide cost pressures…’
• Majestic takes analysts to Welwyn, plies them with drink & says has 1) good team, 2) good plan, which is on track and 3) business discipline
• G1 comments on ‘prevailing headwinds’ in this case North of the Border. Uncertainty, it says, influences punters’ decisions on spending
• Revolution on trading: LfL sales up, no tail to the estate (was left w. Alchemy) & 60% female with growing food offer. Decent enough story
• Revolution gross margin up to 76.1%. Gets an ‘ouch’ on value. Happy to be premium, LfLs still up – both on volume & spend says co
RETAIL NEWS WITH NICK BUBB:
• Tesco: Today’s interims from Tesco are headlined “Strong first half progress” and read well, with “positive like-for-like sales and volume growth in all regions across the Group” and underlying operating profits recovering by 60% to £596m and the group is on track to deliver £1.2bn for the full year. Helped by the success of the farm brands, UK sales were up by 0.9% LFL in Q2 and things are going so swimmingly that the jump in the group pension deficit to £5.9bn is hardly mentioned. But the key part of the statement is that Tesco have been emboldened to share their “ambition to deliver 3.5-4.0% Group operating margin by 2019/20”: “Underpinned by six strategic drivers, we will strengthen our customer offer whilst creating long-term, sustainable value for shareholders”. CEO Dave Lewis will set out more detail on these “six strategic drivers” at the 9am analysts meeting, but they
• Topps Tiles: Today’s pre-close from little Topps Tiles isn’t quite as punchy as Tesco’s, with LFL revenue growth in the 13 weeks ended 1 October slowing to only 1.4%, but Topps estimate that the previously announced strategic decision to exit from the low margin wood flooring category during the quarter reduced Q4 LFL sales by c.1.5%. CEO Matt Williams says “Whilst market conditions weakened over the final quarter as a result of reduced levels of consumer confidence we remain confident in our ability to outperform the market and deliver our goal of further profitable sales growth” and adjusted pre-tax profits for the year ending 1 October are expected to be within the range of current market estimates.