Langton Capital – 2016-11-01 – Leisure spend, wine, property, Boxpark Croydon & other:
Leisure spend, wine, property, Boxpark Croydon & other:A DAY IN THE LIFE: One of the most immediately noticeable things when taking a beach holiday in Europe these days, apart from prices being rather high in Sterling terms, is just how much Russian and Polish is being spoken on the streets and how much stroganoff, goulash and borscht is to be found on the average menu. And I’ve learned that the Russian for pizza is a bunch of Greek-looking letters beginning with the Pie symbol but which, when you work them out, pronounces the word as ‘pizza’ and pasta is somewhat similar all of which suggests to me that 1) the resorts might be sorry to see the Brits priced out but there are plenty of other source-markets out there and 2) there must be a lot of empty beds in Poland as the bulk of that country’s population seems to be working or holidaying abroad. Indeed 3% of people living in Iceland (population kept low historically per Wiki by the delightful tourist-friendly combo of harsh winters, volcanic ash-fall, starvation and bubonic plague) are of Polish origin. On to the news: PUB, RESTAURANT & DRINKS PRODUCERS: • Capacity issues. There’s some good stuff on the High Street and on the nation’s retail parks but, outside London, how full is it on a Monday evening? Could be that low interest rates are prompting too much building. Operators going into the marginal unit on the marginal retail park may struggle to fill their units when or if things slow down. If that’s associated with rising interest rates, then some balance sheets may also be tested. • CBRE reports that, following the June Brexit vote ‘we have seen continued confidence in UK operational real estate investment. CBRE says ‘we are seeing a flight to quality, therefore good transactions that are supported by experienced sponsors will attract interest from a wide range of lenders.’ This would seem to imply that there is a flight away from something else. • Conviviality updates on H1 trading, says has reorganised its business into 3 units, distribution, off-licenses & trading. • Conviviality reports distribution sales +5%, off-license sales +2.5% and trading revenues +5.1% in H1 to end-Oct. • Conviviality reports LfL retail sales down 1.7% against tough comps. Newer stores (opened since 2012) are +1.1% • Conviviality H1 update. Says is ‘making strong progress with the integration of Matthew Clark and Bibendum PLB Group ahead of plan and the plan to deliver synergies remains on track. Conviviality continues to perform in line with market expectations for the 52 week period ending 30 April 2017.’ CEO Diana Hunter reports ‘I am pleased that the Group has delivered this strong performance across all divisions during such a transformational period.’ She says ‘the organic growth in each business unit demonstrates that existing and new customers are increasingly recognising Conviviality as the leading solution provider and distributor to the UK drinks market.’ • Horizons’ latest Quarterly Briefing Report warns that operators will start to see their margins being squeezed as the trading environment becomes less benign. Food and beverage sales rose 1.8% in the last quarter (to September 2016) compared to 2.1% in the prior quarter, but the consultancy expects ‘inflation to start to affect the foodservice sector in measurable ways in the last quarter of 2016 and the first quarter of 2017.’ • The Petrol Retailers’ Association has claimed that the growing sophistication of independent petrol forecourt convenience stores is helping them reclaim margin lost at the pumps. • Spending on eating out in restaurants, pubs, and cafes rose in the past three months, according to research from Deloitte, although there is more pressure to deliver fast service. Sharon Manikon, customer solutions director at Barclaycard said: ‘Time is of the essence for today’s busy Brits and this need for speed now seems to be translating to the dining experience. Eating out and ordering food in are increasingly becoming the norm, with consumers turning to restaurants and delivery services to provide quick and easy meal-time options.’ • More than 125 institutional funds have filed a civil lawsuit against Tesco in the High Court claiming more than £100m in damages over its earnings misstatement two years ago. The supermarket had overstated profit by some £263m and the funds say they have lost millions of pounds as a result of Tesco’s actions and misleading statements. The claim was filed by law firm Stewarts Law on behalf of the group of asset managers, hedge funds and pension funds, and is being funded by Bentham Europe, a group that specialises in funding such lawsuits. • CBRE’s October 2016 Leisure Report has focused on the ‘explosion of the dessert restaurant’ in the eating out sector, with the two main operators being Creams and Kaspa’s. While leisure real estate activity continues, there has been a marked flight to quality over the summer months. Meanwhile the group notes that the anticipated sale of Parkdean Resorts should kick off towards the end of the year. • The UK’s wine industry brought in a record £4bn in tax revenue in the past 12 months, according to the Wine and Spirits Trade Association (WSTA). This comes despite a freeze on duty being introduced in 2015, leading CEO of the WSTA, Miles Beale to comment that such freezes ‘or cuts to duty are not only popular, but have led to greater revenue for the Exchequer, more jobs, greater investment by the industry and a better deal for consumers,’ adding: ‘The industry’s size and contribution to economic activity is regularly vastly underestimated. Through distilleries, vineyards, bottling plants, logistic companies, wholesalers, distributers and retailers it supports nearly 600,000 jobs in the UK, contributes £45.5bn in economic activity and pays over £15.5bn in duty, VAT, corporation and employment taxes.’ • China’s wine imports grew in both volume and value terms in the first nine months of 2016 as the country registered a 19.1% YoY increase to $1.77bn. The total volume of wine imports jumped by 14.42% to over 464 million litres, per WSTA. France and Australia were responsible for 70% of all the bottled wines imported to China during the period based on imported value, followed by Chile, Spain, Italy, the USA, and South Africa. • Constellation Brands is purchasing Obregan Brewery in Mexico from Grupo Modelo for $600m and has increased its FY17 free cash flow guidance to $575-$675m. • Food and drink development Boxpark Croydon has opened in style, with an opening festival featuring grime artists Jme, Ghetts, Section Boyz, and more. Boxpark Croydon boasts 34 of the most in-demand food traders, including MEATliquor and The Breakfast Club. • AB InBev has said the UK on-trade will be a major target for the brewing giant in the years ahead. • Western Gate’s dispute with Stock Spirits’ management has resurfaced after the 9.7% shareholder accused the central Europe drinks distributor of ‘ongoing poor corporate governance’. Stock Spirits recently cancelled an investor day, prompting Western Gate’s head, Luis Amaral, to wonder in a statement sent out yesterday ‘whether Stock Spirits is trying to avoid answering difficult questions from shareholders about the conduct of the company and its performance.’ The shareholder ‘urges’ Stock Spirits to update the market on trading this month. • Western Gate also alleges that the Board of nine (costing £1.36m a year and with 2017 NED salaries ’to exceed £550,000, a 60% increase from 2015 and 108% above median of peer group, 107% above average’) continues to exclude its recently elected independent non-executive directors from committees. The board vigorously opposed the proposal to recruit independent executives to the Board in May, before eventually relenting. • Amaral’s group lays out its concerns via ten questions put to the board in September (to which the Board has declined to respond), revolving around corporate governance structure, ballooning boardroom pay, and the group’s current strategic direction and initiatives. • Luis Amaral said: ‘Western Gate looks forward to the Company’s November Q3 trading update, so that shareholders can judge the impact of its turnaround programme for the core Polish business. Shareholders will have waited two years for this turnaround since the Company’s first disastrous profit warning on 5 November 2014. We also ask that the update explains what the Company is doing to address its excessive head office costs, which if anything look to be increasing now the Board has been expanded to nine people.’ • The de Nonancourt family, which holds about 60% of Laurent-Perrier, is gauging demand about a possible sale or dilution of its stake. Laurent-Perrier is the fourth largest house in Champagne, with just under 4.5% of the global market. It is renowned for its Brut Rosé and Grand Siècle cuvées and owns the Salon de Castellane and Delamotte Champagne houses. • Diageo’s subsidiary, India-based United Spirits, posted an 8% rise in first half net sales of $614.6m as profits after tax jumped 53% to $18m. • The UK voluntary living wage will soon rise from £8.25 to £8.45 (and from £9.40 to £9.75 for those living in London). LEISURE TRAVEL & HOTELS: • Google search data suggests that interest in travel has bounced back quickly in the wake of terrorist incidents. • Russian airline Aeroflot has seen a 10.4% rise in passenger traffic for the first nine months of the year to 21.7 million passengers. OTHER LEISURE: • Ladbrokes’ merger with Coral should complete today. The enlarged company will be called Ladbrokes Coral Group FINANCE & MARKETS: • Writing in The Telegraph, economist Roger Bootle has said that arguments are now stacked against further rate cuts in the UK. The Bank of England’s MPC will opine on Thursday. Bootle says lower interest rates bring forward spending but Bootle also points out that they tend to encourage asset bubbles. He concludes that rates cannot and will not remain low forever. • Governor Mark Carney has said that he will stay at the Bank of England until mid-2019. His 8yr contract would have run to early 2021. • UK mortgage approvals rose in Sept despite June’s Brexit vote. Some 62,932 home loans were approved vs 60,984 in Aug. The Bank of England adds that the rate of approvals remains below pre-Brexit vote levels. • Flash CPI measures for the Eurozone show prices rising at a yearly rate of 0.8% in the 12mths to October • UK markets down yesterday & Europe also lower. US down but Asian markets mostly up in Tuesday trade • Oil price fell sharply yesterday but rising a little this morning. Brent Crude changing hands around $48.90 per barrel • Sterling up half a cent or so. Trading around $1.224 per US$. Trading around 111.6c per Euro YESTERDAY IN A NUTSHELL – SELECTION OF TWEETS, LIVE TWEETS ON WEBSITE: • McDonald’s UK paid £123m in ‘franchise rights’ royalties to Luxembourg last year as part of its controversial tax structure, per The Telegraph • Moody’s reports Remy’s French Whisky acquisition is ‘Credit Positive’. This despite not knowing what the group paid • Soho House has received an equity funding of £21.2m, led by 60% shareholder Yucaipa, to finance further expansion following higher losses • The UK’s restaurant industry is benefitting from muted overseas travel demand, per the Cardlytics Spending Index. • 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. • 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 • 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 CPI • Apple has increased the prices of its products with possible further price rises to come. • PPHE Hotels updates on Q3, says LfL revenues +9.3% to £92.7m (partly on Sterling devaluation). Room rate LfL +11.5%. • 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. • 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 Aug • US economy grew at its fastest rate in 2yrs in Q3 per US Commerce Department, achieving an annualised rate of +2.9%. • B of England says “nothing has changed” re how long governor Mark Carney will remain at the bank. Will be a decision by year-end • Later tweets: WPP shows what weak ££ can do for you. UK revenues Q3 +23% but sales only up 4% in Euro terms. And down if you want then Yen denominated • Carney. Will he, won’t he? Brexit coup plotters want him out – and he might just want to go, given the medium-term outlook • US Q3 earnings said to have beaten estimates 73% of the time. Much better than it might have been • UK gilt yields trading at recent highs. Rates can’t stay low forever. Pension deficits (they were always arguably illusory) will diminish • Inflation in the system. Apple computers, phones, commodities, oil and now Marmite. Where will it end? Rents 2.5x inflation etc. etc. • McDonald’s exporting UK cash to Luxembourg & plays into Brexiters’ hands. Not really cricket, is it? RETAIL NEWS WITH NICK BUBB:
• Conviviality: The fast-changing drinks wholesaler and retailer Conviviality has issued an upbeat update today on H1 trading for the 26 weeks to 30 October, highlighting that sales in each of the 3 new business units were up: Conviviality Direct sales were up 5.2%, Conviviality Retail sales were up 2.5% (down 1.7% LFL) and Conviviality Trading sales were up 5.1%. The company says that it is “making strong progress, with the integration of Matthew Clark and Bibendum ahead of plan and the plan to deliver synergies remains on track. Conviviality continues to perform in line with market expectations for y/e April”. Diana Hunter, the CEO of Conviviality, says “I am pleased that the Group has delivered this strong performance across all divisions during such a transformational period”. And in case you’re wondering what Conviviality actually does….”existing and new customers are increasingly
• Sergio Bucher Watch: Catching up with all the stuff going on last week, we have been asked whether the new CEO of Debenhams put in an appearance at last week’s Debenhams analyst’s meeting. And the answer is that he did and he stood up at the start of the final results presentation, at Ian Cheshire’s prompting, to say that in his first week he had already been around several stores, as well as the DC, and that there were 3 very good reasons for him to have joined Debenhams: the range of brands (“I’m a Brand guy: I love brands”), the very solid balance sheet and the differentiated offer (eg in Food and Beauty). The new non-exec Chairman, Ian Cheshire, was also in feisty form, mocking those who thought that the pension deficit was a problem, insisting that there is no long tail of underperforming stores (and that high rents are not a problem), trumpeting the breadth of the business and
• Bromley Watch: Having flagged last week that Intu Properties have announced the sale of one of their original shopping centres, Intu Bromley (opened as The Glades in October 1991), to provide capital for its £600m development pipeline, we have also been asked who’s bought it. And the answer is that Intu’s 63.5% stake in intu Bromley has been sold to Alaska Permanent Fund Corporation (‘APFC’) for £178m, representing a small premium to its 30 June 2016 valuation of £176m and a chunky net initial yield of 5.7%. The huge Alaska Permanent Fund Corporation fund is, of course, the fund set up in 1976 to invest a chunk of Alaska’s oil revenues. Incidentally, although the warning from Intu Properties that the demise of BHS would hurt its short-term rental income got some attention in the City, Intu also announced (ahead of tomorrow’s Next Q3 update) that Next have agreed a lease to upsize • News Flow This Week: As we move into November, the big event this week is the Next Q3 update tomorrow, 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 tomorrow evening at the Waitrose Cookery School on Finchley Road and Friday morning brings the SMMT new car sales figures for October. |
|