Langton Capital – 2016-11-07 – Profit warnings, night Tsars, inbound tourists & other:
Profit warnings, night Tsars, inbound tourists & other:
A DAY IN THE LIFE:
So after about 6 defeats on the trot, the Mighty Hull City has turned in a victory and cemented itself as the least bad of the nation’s three worst Premier League teams.
And, whilst that won’t be enough to keep us in the top flight, if we can just persuade one other outfit to sink beneath us in the table, we’ll be home clear and, in case anyone had the slightest of doubts, coming in 17th at the beginning of May is the new winning. On to the news:
PUB, RESTAURANT & DRINKS PRODUCERS:
• London mayor Sadiq Khan has appointed Amy Lamé, former mayor of Camden, as London’s new Night Tzar. The BBPA and the ALMR have both issued statements saying they look forward to working with Lamé in promoting the capital’s hospitality offering.
• The pubs code adjudicator Paul Newby has outlined how pub companies found to be in breach of the pubs code will be investigated, in what he calls a ‘major milestone’. Newby’s statement describes a five-step process for investigating and penalising alleged breaches of the code, which could culminate in a maximum charge of 1% of annual turnover of the offending company.
• Fever Tree updates on trading, says results for the full year will be ‘materially ahead of current market expectations’.
• Fever Tree says ‘it has continued to perform strongly in the second half of the year [to end-Dec]. The performance in the UK, the Group’s largest market, has been particularly strong as new distribution gains have combined with a continued rate of sales growth.’ The group concludes ‘given the strong sales in the period to date, the Board anticipates that the results for the full year ending 31 December 2016 will be materially ahead of current market expectations.’
• Fever Tree says the PER for this year (the market is on 52x falling to 46x next year) will fall as profits will beat expectations. Good news from a good company but, arguably, on such a PER, the expectation must have been that expected expectations would come in ahead of expectations IYKWIM.
• Amsterdam-based brewer De Prael claims its new 4.5% ABV Amsterdam Helder helps soothe hangovers, thanks to ingredients including ginger and sea salt.
• Gousto has secured £10m of funding from Barclays, BGF Ventures, Angel CoFund, MMC Ventures, and Unilever Ventures.
• Whitbread is opening its flagship Bar + Block Steakhouse in London this month and will open its third – a 4,500 sq ft site in Whiteley shopping centre – in February 2017.
• The majority owners of Loungers have decided to offer the 77-strong pub business for sale, with major pub players including Greene King and Fullers said to be interested. Buyout firms Inflexion Private Equity and Equistone have also registered their interest in Loungers, which generated £48m of turnover and £2.5m of profit in its FY15.
• UK restaurant group Azzurri, owner of Ask, Zizzi, and Coco di Mama, has seen a 5% rise in sales to £233.8m and a 6.4% increase in EBITDA in the past year. While several other operators have struggled in a competitive and potentially over-extended market, Azzurri has overseen like-for-like growth across its three brands and is continuing its roll-out programme, despite acknowledging that next year ‘is likely to be a more challenging environment’. The group invested a record £22.2m on opening and refurbishing restaurants in the period, and management believe this, coupled with the group’s growth momentum, should be enough to weather any downturn.
• Bedlam Brewery has smashed through its £330,000 target on its Crowdfunding campaign, with 290 restaurants so far stumping up £500,000. Bedlam is itself contributing a £170,000 investment. MD, Dominic Worrall was delighted with the outcome ‘Whilst our focus will obviously remain on the core objectives of delivering a new brewery and retail store, this level of overfunding will now allow us to further examine the opportunities that exist for us, for example to bring forward our export plans. It’s our ambition to save our neighbourhood from mass produced factory beer and ensure that Bedlam’s beer goes on to reach as wider audience as possible.’ Bedlam has recently been joined by Paul Reed, who is known for developing Dark Star Brewery into the national brand it is today.
• Plans to build new supermarket stores have ground to a halt, signalling a comprehensive end to the supermarket space race as incumbents grapple with changing consumer habits. Two thirds of plans to build new large stores have been cancelled by the major grocers over the past two years, per figures for The Telegraph by Barbour ABI reveal. Meanwhile, Sainsbury’s, Tesco & Morrisons have filed just one supermarket planning application each this year, compared to 20 two years ago.
• Road traffic data suggests there has been a surge in Saturday morning shoppers to Northern Ireland from the Republic following the EU referendum.
• The Money Charity has reported that household debt in the UK has hit £1.5 trillion for the first time ever. It says UK adults owe an average of £30k each, some 87% of the money owing on mortgage debt.
• The average UK adult owes around £3,700 in loans & credit card debt
PROFIT WARNINGS: THEY’RE JUST NOT ALL MADE THE SAME…
• Crawshaw & Premier Foods warned on trading in Sept & Oct respectively:
o Negative profit (or sales) warnings are never good
o Nor are they neutral but, even if they are all negative, some are more negative than others
o Positive profit warnings are rare – but they do happen; see Fevertree above.
• Existential, business-model threatening warnings:
o See Monetise, Jessops, Blockbuster, Woollies etc. as existentially-challenged companies
o More recently, Crawshaw (high PER growth stock) warned on trading
o It blamed ‘international football, adverse weather & Brexit’
o Customers are super-cost-conscious & supermarkets have ‘aggressive meat promotions’
o All a bit of a challenge for a High Street based, price led butcher
o But out of town units are OK – though this isn’t why shareholders are in the stock
o A policy flip-flop may be suspected, the raison d’etre is less clear than it was
• Annoying but hopefully transient warnings:
o Premier Foods commented in Oct that sales were sluggish
o It would hit profit numbers by cutting media spend. Not ideal, but there is some wiggle-room
o It blamed the weather. Every week in calendar Q3 was warmer than the same week in 2015
o Hence, though sweet treats & exports were good, less gravy, food mixes, puddings were sold
o The BBC, somewhat helpfully, confirmed that the warmest day of 2016 was 13 Sept
• This matters:
o Brexiters famously said they were sick of statistics, excuses & experts
o But that risks throwing out the baby with the bathwater
o Re PFD, Oct was cold, Nov is so-far chilly & Dec comps are soft as it was warm in 2015
o The group (PER 5.4x) reports H1 numbers a week on Tuesday
LEISURE TRAVEL & HOTELS:
• Action Hotels announces it has completed the sale of land at Sharq, Kuwait for $14.6m. CEO Alain Debare reports ‘we are pleased to have completed the sale of the investment land in Sharq for $14.6 million. This transaction is a good example of Action Hotels’ ability to best utilise its assets to support its overall growth strategy.’
• Hyatt Hotels has posted a 148% jump in third quarter net income to $63m, driven by a 2.5% rise in revenue per available room and increased management and franchised fees. The company expects its full-year results to be down slightly, however, from $260m to $250m, despite a 6.8% year-on-year rise in total fee revenue. The results point to a strong market in the Americas, where the company is on track to open 60 hotels this year.
• Mark Hoplamazian, president and chief executive of Hyatt, said: ‘Looking ahead, we believe we are well positioned to deliver against our growth strategy, by serving the needs of high-end travellers. Additionally, given our executed contract base of approximately 61,000 rooms, or more than 35 per cent of our current room base, we believe our portfolio of high-quality brands is poised for meaningful and sustainable growth.’
• 2.6 million passengers used Eurostar over the peak summer months, down 10% year-on-year, while revenue was down 8% to £184m in what has proven to be a ‘challenging’ period. Traffic had suffered following the terrorist attacks in Nice, however the decline in sterling has boosted travel to the UK in recent weeks, and the company is on schedule with its new service between London and Amsterdam by the end of 2017.
FINANCE & MARKETS:
• Strong US jobs data for October has bolstered the case for a rise in US interest rates. The US economy created 161,000 jobs last month, while job creation for August and September has been revise up and the unemployment rate has edged down to 4.9%.
• PM Theresa May has said that she will deliver a full EU exit despite the court requirement that she consult parliament. She maintains that she is only following orders.
• Sterling up on Friday as a hard Brexit was deemed less likely. Still the case that we cannot both control EU movement & remain in the single market
• Times reports agricultural bosses suggesting that food will rot in the ground unless foreign workers are allowed in to replace EU workers who are deserting the nation’s fields in the wake of Brexit.
• Independent quotes ‘bosses’ as saying Brexit is ‘spinning out of control’. They would like some clarity, they say
• ECB vice president Vitor Constancio has said that EU inflation is set to return
• World markets: UK, Europe & US down on Friday. Asian markets up in Monday trade. S&P 500 down for record 9th session.
• Oil down at around $46 per barrel for Brent Crude. Sterling up at around 125c to the US$.
• New car registrations in UK +1.4% y-o-y in October
YESTERDAY IN A NUTSHELL – SELECTION OF TWEETS, LIVE TWEETS ON WEBSITE:
• Punch’s shares languish on a PER of 5.7 but group has cut debt & has been in LfLgrowth since 2014
• Punch trades at c106p whilst TNAV per share is 284p. Group redemption of PIKs adds £8.5m (c3.5p) to profits. FY numbers are Tuesday
• Starbucks reports Q4 & FY numbers. Says Q4 LfL sales +5% in Americas, +4% in USA, +6% in China & +4% globally.
• Sainsbury’s plans to introduce contactless payment to its stores in early 2017
• Confidence in UK economy rebounds from shock Brexit vote lows, with more than 50% still planning overseas holiday in next 12mths
• A study of more than 2,000 US consumers conducted by Travelzoo suggests that US tourists are set to spend an extra £1bn in the UK
• Paris’ hotel industry suffered a 15.1% fall in revenue per available room through the first nine months of 2016, per STR
• High Court rules Parliamentary approval necessary before Article 50 is invoked. HMG is to appeal to the Supreme Court.
• B of England Governor Mark Carney has told the BBC that the Brexit court defeat is ‘one of many twists and turns that are likely to happen’
• Mrs May is being urged to call a snap election to secure mandate for Brexit. She’d prefer to sit pretty, at least keep job for a whole
• MPC leaves rates at 0.25% & QE at £435bn. Says growth in 2017 c1.4% vs earlier estimate of 0.8%. Cuts 2018 estimate from 1.8% to 1.5%
• Bank now sees inflation next year coming in at 2.75% next year. Says household spending growing faster than earlier anticipated
• US S&P Index has its worst losing run since 2008, falls for 8th straight session, Europe down for 9th straight day
• Later tweets: Stakes raised for next week. Trump says will sack Yellen if he’s elected. Markets not too sure about that Donald
• S&P down for 8dys now. Has never fallen for nine. All eyes on US market for this afternoon. May depend on Payroll data
• Brexiters ‘we’re out of the woods’. Check Hofstadter’s Law. Things take longer than you think. US housing fell late 05 & Lehman was Sept 08
• Planalytics has it cold & dry in Oct. Good for on-trade but actually quite similar to last year. Keep an eye on PFD etc.
• BDO has fashion sales down 5.2% in Oct. Comps tough but colder weather should have helped.
• Cold Oct & now cold Nov. Some say ‘weather, pah!’ but it really does matter – particularly if it leads to share price anomalies
• When is a profit warning not a profit warning? When it’s weather-related (transient) vs existential. Compare Oct’s PFD vs CRAW
RETAIL NEWS WITH NICK BUBB:
• Saturday Press: The Sky News scoop that Marks & Spencer will announce on Tuesday that it intends to close dozens of UK stores and switch selling space from clothing to food got lots of coverage in the Saturday papers. The Times also reported that even Frank Field MP thinks that the Pensions Regulator should disclose its case against the embattled Philip Green over the BHS pension deficit row. The Telegraph focused on the mixed news in Friday morning’s SMMT new car sales figures for October (fleet volume was up 4.2%, but private volumes were down by 1.1%). The big story in the market reports was that the private equity fund Advent has dumped more of its holding in DFS. Finally, the Guardian had a big feature on the Christmas TV ads, noting that Argos has launched an ad starring brightly coloured yetis…and that John Lewis is expected to unveil its much-awaited new ad on Thursday
• Sunday Press: The beleaguered Marks & Spencer and the embattled Philip Green vied for coverage in the Sunday papers and the latter edged it, with the Sunday Times flagging that he is fighting with the BHS administrators over a £35m charge held by his Arcadia Group over the collapsed business and the Sunday Express revealing that he bombarded Ros Altmann, the former Pensions Minister, with badly spelt text messages in the weeks before BHS collapsed into administration. The Sunday Express also claimed that Philip’s wife Tina could be targeted by the Pensions Regulator as part of its efforts to get the former BHS owners to plug the pension scheme deficit, whilst the Sunday Times also highlighted that Arcadia is “showing signs of strain”, noting how tatty its stores in Maidstone look. As for M&S, there were plenty of gloomy previews of Tuesday’s interims and quite a few editorial
• Grocer Watch: The widely followed Grocer “33” weekly supermarket pricing survey in Saturday’s Grocer magazine saw Asda win for the 4th week in a row. The Asda basket of £53.43 was a useful £3.53 cheaper than second-placed Tesco, although that was before the Tesco instant “Brand Match” discount of £2.07, whilst the Asda guarantee to be at least 10% cheaper than its rivals cost it a £1.15 voucher. Morrisons was beaten for third place by Sainsbury, whose £57.20 basket was £1.05 cheaper than Morrisons. Poor old Waitrose was way behind, as usual, with a basket costing £62.21. There was more bad news for Waitrose in the separate Grocer “Mystery Shopper” weekly survey on Store Service and Availability, as its store at Pontprennau in Cardiff came joint bottom, with a poor score of 58 out of 100 (having got 0 out of 20 for stock availability…). However, Morrisons topped the rankings, with
• News Flow Next Week: A busy week kicks off with the BRC-KPMG Retail Sales for October first thing tomorrow, closely followed by the M&S interims/Strategy Review and the ABF (Primark) finals. Wednesday then brings the Sainsbury interims and the Burberry interims and then on Thursday we get the Halfords interims and the SuperGroup Q1 update…plus the new John Lewis Christmas TV ad.