Langton Capital – 2016-10-31 – New openings, PPHE, RCL, gilt yields & other:
New openings, PPHE, RCL, gilt yields & other:
A DAY IN THE LIFE:
What is it about deadlines, particularly when it comes to packing and preparing to leave for a trip, that sets people apart.
Because, far though it is from me to call it a gender-issue, there does seem to be a tendency for one of them to pack a week in advance but still manage not to be ready to leave at the allotted hour, whilst the other will pack for 20 minutes the night before the trip but will be ready to leave on the dot.
And so what if you’ve forgotten your underwear, your sunglasses and the teapot? At least you’ve got your phone, the charger, your money, plastic and your passport and most other things are just details, aren’t they? Not that I would recommend going swimming with your underpants under your shorts to wash them every day because there are limits, aren’t there? On to the news:
PUB, RESTAURANT & DRINKS PRODUCERS:
• McDonald’s UK paid £123m in ‘franchise rights’ royalties to Luxembourg last year as part of its controversial tax structure, per The Telegraph. The group is currently under investigation by HMRC for its tax arrangements.
• Moody’s reports Remy’s French Whisky acquisition is ‘Credit Positive’. It says ‘last Thursday, Remy Cointreau S.A. (Baa3 stable) announced that it had entered into exclusive negotiations to acquire the Domaine des Hautes Glaces, a small French organic producer of whisky with a distillery in the heart of the French Alps. The acquisition, the price of which Remy did not disclose, is credit positive for Remy because we expect strong growth from its products and Domaine des Hautes Glaces’ premium products help Remy focus on the ultra-premium category. We also do not expect the acquisition to delay Remy’s deleveraging, but do expect it to modestly contribute to Remy’s future volumes and revenues.’
• Soho House has received an equity funding of £21.2m, led by 60% shareholder Yucaipa, to finance further expansion following a year of increased operating losses of £11.8m in FY14. Soho House also sold 50% of its stake in its Pizza East, Dirty Burger, and Chicken Shop chain of restaurants to a private investor last year for the sum of £13.8m and has recently expanded its credit facility by £5m to £30m, making for a total increase in funds of £40m. The extra funds, totalling £40m, will be used to open a string of new venues around the world as the Soho House brand continues to expand.
• Soho House’s credit rating was downgraded to junk Caa2 status by the credit rating agency Moody’s in April after taking out a further £40m in costly borrowing via a tranche of Payment in Kind (PIK) notes, which carry interest payments of 12pc plus Libor, in October 2015. The notes are repayable in October 2019 and followed on from a £152.5m fundraising in 2014 designed to refinance the group.
• The UK’s restaurant industry is benefitting from muted overseas travel demand, per the Cardlytics Spending Index. The Telegraph writes that the report shows spending in restaurants grew by 2.3% in the third quarter and almost 12% year-on-year. The ongoing price war between supermarkets is said to also be freeing up cash for consumers to spend, while online delivery platforms such as Deliveroo have made takeaway more accessible.
• Scottish Government releases liquor licensing statistics for 2015/16. Shows licenced premise numbers little changed at 16,704 (vs 16,663).
• Majestic Wines is ditching its requirement for online shoppers to buy at least six bottles.
• Rhubarb, the caterer at Royal Ascot and the Goodwood Estate, has received a bid from Livingbridge.
• Jules Thin Crust, the US organic thin crust pizza restaurant chain, has opened its first UK site in Putney, south west London. The 2,100 sq ft unit was secured by restaurant agent Restaurant Property and has 60 covers across its basement, ground floor and first floor.
• Morrisons has increased the price of Marmite by 12.5% as Unilever raises its prices across a range of brands due to the slumping pound. Apple has already bumped up its prices, while Microsoft is set to follow and British Airways owner IAG has also hinted at price hikes.
• A group of American hedge funds including Apollo Global Management have bought a chunk of the department store’s bonds amid concerns over its trading. House of Fraser sold £175m of bonds on the Luxembourg stock exchange as part of a £300m refinancing last year, but these have fallen to about 83p in the pound as concerns grow over the 167-year-old department store chain’s sales and profits.
• Analysts expect high street prices to rise by up to 4% next year as suppliers and retailers pass on the impact of the weak pound, which could accelerate the trends of increasingly fickle consumers and a shift towards lower cost online operators.
• ONS figures show the cost of renting a home in Britain rose by 2.3% in the year to September, faster than the 1% rise in the overall cost of living.
LEISURE TRAVEL & HOTELS:
• PPHE Hotels updates on Q3, says LfL revenues +9.3% to £92.7m (partly on Sterling devaluation). Room rate LfL +11.5%. LfL occupancy flat at 85.6% with LfL REVPAR +11.3%. President & CEO Boris Ivesha reports ‘we are pleased to report a good performance during the third quarter, with reported revenue increasing across all our operating regions. In particular, our acquisition in Croatia earlier this year had a significant positive impact on our results in the second and third quarters’ Mr Ivesha concludes ‘based on our results to September and the outlook for the final quarter, the Board anticipates the full year results to be in line with its current expectations.’
• Risk Capital has acquired a 10.64% stake in Elegant Hotels Group, which floated on AIM in May 2015 at 100p but has since fallen to 75.5p.
• Royal Caribbean Q3 numbers said to be ‘solid’. Group has Q3 EPS of 320c, up 13% on the same period last year.
• RCL says re FY17 ‘the company’s booked position is better than same time last year on both volume and rate, supporting the company’s trajectory’.
• RCL says Q3 net yields ‘were up 2.9% on a Constant-Currency basis (up 0.4%, As-Reported), better than guidance driven mainly by strong close-in demand for North American itineraries.’ For the full year, RCL says ‘net yields are expected to be up 4.0% or better on a Constant-Currency basis (up in the range of 1.7% to 2.0% As-Reported). Strong close-in demand for North American products in the third quarter is helping offset the impact from the delay in opening Empress of the Seas sailings in the fourth quarter.’ CEO Richard Fain reports ‘our business continues to progress solidly to the Double-Double, and our recent dividend increase is evidence of our confidence in that trajectory. It is gratifying to again be headed towards record earnings for the year, above our initial guidance.’
• Barron’s has reported that shares of hotel operator Hilton could rise by 25% on its planned split into 3 companies.
• Brexit, the weaker pound, terrorism, and network disruption have all taken their toll on IAG’s results for the nine months to September. The British Airways owner revealed that trading in the run-up to and following the EU referendum, particularly in premium travel, as third quarter operating profit fell to €1.205bn from €2.250bn a year earlier.
• Deutsche Bank has sold a 16.9% stake in Las Vegas gambling group Red Rock Resorts worth some $400m as the bank attempts to ease concerns over its balance sheet. Shares in DB have rallied from their September lows but are still down about 23% on the year. The £25m package comprises of a £20m three-year revolving credit facility, a £4m asset finance deal for the warehouse and a £1m overdraft to support general business. Scott Etherington, Wasabi finance director, said: ‘This is a very important moment in the development of our business. With a well-established presence in London, successful outlets in major regional cities and two branches in New York, this deal provides us with the backing to push on to the next stage of our expansion plans in the UK and internationally.’
• Apple has increased the prices of its products with possible further price rises to come.Apple has to recalibrate prices after significant currency fluctuations, and since the EU referendum, UK prices are out of sync with the dollar,’ said Patrick O’Brien, analyst at the Verdict Retail consultancy. ‘Apple has taken the hit up until now. While price increases won’t look good to the consumer, it’s difficult to blame Apple.’
FINANCE & MARKETS:
• Gilt yields are back at post-Brexit-vote highs. 10yr yields were 0.68% a month ago but are now around 1.26%. The low was 0.52% on 12 August. 10yr gilts have lost around 6% of their value in the last week.
• US economy grew at its fastest rate in 2yrs in Q3 per US Commerce Department, achieving an annualised rate of +2.9%. Analysts had been looking for around 2.5%. The greater-than-expected rise increases the chance of an interest rate hike later this year.
• Professor Jagit Chadha, representing the NIESR, has said that public debt levels, already high, may constrain fiscal policy going forward. Prof Chadha suggests ‘the government may be tempted to use fiscal policy to offset a future slowdown but caution must be exercised. Public debt levels are already high and risk premia have been far from eradicated. The Bank of England is the largest single holder of UK debt and that starts to erode the distinction between monetary and fiscal policy to the point where it is hard to see much of a difference’. Prof Chadha adds ‘we need to think about a fiscal framework that explains ‘misses’ from previously announced plans but promotes a sense of ‘timeless’ fiscal sustainability. The fiscal framework is in need of attention before policy can be asked to allow debt to deviate for long periods from what we may think is normal. Ultimately, rather than a
• World markets: UK up Friday but Europe down. US markets also down and Far East markets lower in Monday trade
• Oil down through $50 with Brent Crude changing hands around $49.95 per barrel after latest OPEC meeting failed to cut preoductiomn
• Sterling little changed at around $1.219 per US$.
• Business Sec Greg Clark has said that he is aiming for tariff-free trade in cars post Brexit. Nissan is currently reviewing its options
• B of England says “nothing has changed” re how long governor Mark Carney will remain at the bank. A spokesman told the BBC ‘the governor has said he will make his decision public by the end of the year.’ Mr Carney took over in June 2013 for an 8yr term, but he has an option to leave after 5yrs. The Times has said he is likely to quit in 2018 whereas the FT says that he is “leaning strongly” towards staying for the full term.
YESTERDAY IN A NUTSHELL – SELECTION OF TWEETS, LIVE TWEETS ON WEBSITE:
• Anheuser-Busch InBev reports Q3 numbers. Sales +2.8% in Q3 and +3.3% in 9mths to date. Brazil trading tough
• AB Q3: EBITDA down 2% in Q3 on poor Brazil numbers. Margin +178bps to 36.3%. Net profit $1.36bn vs $1.67bn last year
• Kona Grill reports Q3 numbers, says sales +20.7% to $43.4m. LfL sales +0.7% with growth in 24 of last 25 Qs
• Conviviality has announced it has established a supply agreement with UK delivery wholesaler Palmer & Harvey McLane.
• Amazon’s Q3 figures disappointed analysts and sent its shares down in after-hours trading
• The US hotel industry posted a 2.6% rise in occupancy to 72.3% during the week to 22 October
• Alphabet has surpassed expectations by reporting a 20.2% rise in revenue in its third quarter to $22.5bn (£18.5bn)
• Twitter is reducing its workforce by 9% (c350 jobs) as a result of a sharp slowdown in revenue growth of 8%, down from 20% in prior Qtr
• British 10yr gilt yields hit a post-Brexit high on Thursday of 1.27%, dragging other European government bond yields higher.
• Britain’s economy slowed by less than expected to +0.5% in the three months to September,
• ECB governor Luis Maria Linde has said that it is important that any reduction in QE is done slowly and not abruptly
• World markets: UK mixed yesterday with financials up. Europe up, USA down and Far East mostly lower in Friday trade
RETAIL NEWS WITH NICK BUBB:
• Grocer Watch: The widely followed Grocer “33” weekly supermarket pricing survey in Saturday’s Grocer magazine had a special Unilever-themed shopping list (with 11 of the 33 items, including Marmite…), but Asda won for the 3rd week in a row and by a big margin. The Asda basket of £57.92 was a hefty £6.49 cheaper than second-placed Tesco, and it would still have been top, even after the Tesco gave an instant “Brand Match” discount of £4.34. Morrisons was third, on £66.24 and Sainsbury was fourth, on £69.44. Poor old Waitrose was way behind, as usual, with a basket costing as much as £76.72 and it was a “staggering” £10.94 more expensive than Asda on the 11 Unilever items…There was better news for Waitrose in the separate Grocer “Mystery Shopper” weekly survey on Store Service and Availability, as its store in Ipswich came 2nd, with a decent score of 79 out of 100. However, Tesco
• Saturday Press: The Saturday papers were a “Philip Green free zone” for once, with the main focus on the news in the Grocer that Morrisons has broken ranks and increased the cost of a jar of Marmite by 12.5% (the Grocer reported that it is now charging £2.64 for a 250g jar). The Guardian had a big News feature on this story (as well as the news that Apple has increased the prices of its laptop and desktop computers in the UK by hundreds of pounds, because of the fall in sterling) and the FT also covered the Morrisons Marmite price increase story. The Guardian also had a feature on the news that another mild autumn is forcing Fashion retailers to cut the price of their winter ranges: House of Fraser and Debenhams have been offering up to 30% off coats, knitwear and winter boots this weekend, forcing John Lewis into another round of price matching (due to its “never knowingly
• Sunday Press: The Sunday Times was the paper to read for Retail stories today, and it led its Business section front page with the story that a number of US hedge funds have acquired junk bonds in House of Fraser, which have plunged in value on the back of concern over the department store’s trading. The Sunday Times also had a prominent story that Next will “send a chill” through the High Street with its Q3 update on Wednesday, despite recent hopes that it would flag improved October trading. The Observer also flagged that the outlook for fashion retailers is “cloudy”, given the current warm spell and that Next’s update will be key. The Sunday Times reported that Matalan has cut ties with Korean clothing supplier JJ Global due to a disagreement over pricing and its Business Editor looked in his column at the recent bid rumours about Burberry and concluded that they can only be
• Majestic Wine: As flagged by the Times on Saturday, Majestic Wine has announced this morning that it is to drop the requirement for customers ordering Online to buy at least six bottles, as part of its move to make 1250 wines available for next day delivery. This begs several questions, including how many people actually order less than 6 or even 12 bottles when ordering wine Online and how many people know that rival Naked Wines is owned by Majestic…but the key point is that the operation will be done through a new National Fulfilment Centre (“NFC”), managed by Wincanton Logistics and based in Greenford. Majestic think that c40% of all Online orders will now be fulfilled through the NFC, rather than through the stores: “this will allow our people to focus on customer service rather than shifting boxes and organising deliveries”.
• News Flow This Week: As we move into November, the big event this week is the Next Q3 update on Wednesday, but the Howden IMS and the Morrisons Q3 update on Thursday will also be worth looking out for (as will the MPC interest rate announcement on Thursday lunchtime). The Waitrose Food & Drink Report 2016 is launched on Wednesday evening at the Waitrose Cookery School on Finchley Road and Friday morning brings the SMMT new car sales figures for October.