Langton Capital – 2016-12-22 – Current trading, confidence, Christmas, hotels & other:
Current trading, confidence, Christmas, hotels & other:
A DAY IN THE LIFE:
The Langton email is a little over 10yrs old.
There was no birthday party as I forgot the date but digging out some of the old files has led to our reading through a number of our comments from 10 plus years ago.
Dec 2006, of course, was before the lights were turned off. It was near the peak of the boom in terms of ‘efficient balance sheets’, share buybacks, VC takeovers, special dividends, opco-propco splits, mispriced risk & other perversions etc.
And there’s a certain morbid fascination to be had as we now know the ending when reading about Punch’s purchase of Spirit Group, Robert Tchenguiz’s wooing of M&B, Luminar’s saying it was going to introduce betting booths into its nightclubs etc.
But what struck us as much as anything else was how difficult, at the time, it was to go against the flow. Mind guards had been set up to root out heretics and it was hard to step too far out of line.
Companies, good companies, took on much too debt, bad companies did the above x2 or x5 and went bust and there were far, far too few sell recommendations around.
We remember championing the cause of caution but we were perhaps more lionesque in our own minds than in our actions & we were still relatively timid. We did, however, managed to dig out sell recommendations on Punch Taverns at 1233p (equivalent to £246.60) and on M&B at 880p.
You can’t get them all wrong. We have strong views at the moment but don’t necessarily want to put them all out into the ether. Anyway, there’s a definite winding down feeling out there now. On to the news:
PUB, RESTAURANT & DRINKS PRODUCERS:
• Current trading. Christmas looks OK. City centres may be winding down now, suburbs should still be busy.
• Current trading. Jan is always dire & Feb is little better. Could be March before we get much insight into the consumers’ mood
• Current trading. Political issues (and costs) loom with Art50 in March, Brexit planned in March 19, General Election May 20
• Consumer confidence in the UK rose in December but remains close to levels seen immediately post 23 June. GfK reports confidence at minus 7 in December. It was minus 8 in November. GfK says ‘confidence in the general economic situation…has collapsed in the face of uncertainty about the future both at home and abroad.’
• GfK says ‘looking ahead to 2017, against a backdrop of Brexit negotiations, the decline in the value of sterling, and the prospect of higher inflation impacting purchasing power, we forecast that confidence will be tested by the storm and stress…of the year to come.’
• Coca-Cola is in talks to refranchise most of its bottling operations in Africa after paying $3.15bn to purchase a majority stake in the business from AB InBev.
• British Institute of Innkeeping (BII) CEO Mike Clist says there is no doubt 2017 will be a tough year for the pub sector, with a quarter of pubs likely to absorb higher rates. Speaking to the MA, Clist said: ‘The Government needs to understand that if they want the pub industry to thrive – one that continues to attract millions of visitors to our country – they need to rethink the overall tax burden that falls so heavily on them. The rates revaluation just adds to the ever-longer list of escalating costs, including the national living wage, the new apprenticeship levy, and charges associated with the many forms of red tape.’
• OpenTable research finds that UK consumers dined out on average twice a week in 2016, meaning eating out is on the increase. Of the 2,000 UK consumers asked, 54% said they eat out more now than they did five years ago, while 37% ate out more in 2016 than the previous year.
• Greene King’s Leisure Spend Tracker shows strong year-on-year growth in eating and drinking out spend in November but figures were flattered by last year’s terror attacks in Paris. Month-on-month leisure spend was down, with the average British household spending £206 on out of home leisure in November (+9% y-o-y and -3% m-o-m).
• PASS has welcomed the Government’s support of the National Proof of Age Standards Scheme and urges the licensed hospitality sector to accept PASS cards at their venues. PASS Interim Chair (and ALMR Chief Executive) Kate Nicholls said: ‘Not only are lost or damaged passports an inconvenience, they are enormously expensive to replace. Half of all lost passports, a considerable number, occur when holders take them to pubs, bars or nightclubs. There is an opportunity here for the sector to support its customers and to lead a fundamental change in attitudes regarding acceptable forms of ID.’
• The BBPA has also welcomed the new campaign to encourage young people to use identification other than passports when going out.
• JDW bought back for cancellation 80k of its own shares at 858p on Tuesday
• Supermarket sales of sparkling wines continued to grow in 2016 but wine sales fell by £82m, according to the latest figures from Nielsen. Sparkling wine was the third fastest growing product in the supermarkets in 2016, with sales of £101.9m, up 15.5% on the same time last year. Spirits were also in growth, rising 1.3% or £51.8m over the year, making it the seventh fastest growing category, with an overall value of £4bn.
• PUB17, ‘the only dedicated show for the UK pub industry’, is returning to London next February and will focus on the evolution of pub grub.
• Camerons brewery is launching a Motörhead beer collaboration which will go on sale in supermarkets in 2017.
LEISURE TRAVEL & HOTELS:
• Thomas Cook has ruled out a return to Sharm el Sheikh next summer, saying ‘the decision ultimately rests with the Foreign and Commonwealth Office’.
• Independent hotel group Macdonald Hotels has seen turnover grow by 5% to £163m across its 55 properties in the year to 31 March. Occupancy has increased by 1.5% and average room rate was up 2.4%, while the group brought its bank debt down by over half a billion pounds since 2003.
• Jet2.com is adding four new routes, extra capacity and an additional aircraft to its new base at Stansted for summer 2017.
• The US is poised to be the most popular destination for international air travellers at Christmas, with other top destinations including Thailand, the UAE, China, India, Mexico, and the UK. Japan, Spain and France also figure on the list, compiled by ForwardKeys.
• The Scottish parliament has introduced a bill to establish the tax which will replace Air Passenger Duty.
• The US hotel industry saw occupancy rise 2.5% to 60.7% year-on-year in November 2016, while ADR grew by 3.4% to $119.71 and RevPAR rose 5.9% to $72.68.
• PPHE Hotel Group proposes to transfer its German and Hungarian operations to its non-wholly owned subsidiary Arenaturist in exchange for 1,091,250 new shares in Arenaturist. It says this is ‘consistent with PPHE Hotel Group’s strategic plans to develop Arenaturist into a substantial Central and Eastern European leisure and hospitality company with a unique business model that would entail owning and managing its own assets and those of others primarily under the Park Plaza brand.’
FINANCE & MARKETS:
• Bank of England agents’ reports suggest ‘activity growth had edged up, but businesses remained cautious about prospects.’ The report says ‘the fall in sterling since June had led to higher goods export volumes. Consumer demand had been boosted by rising tourist spending.’
• Bank of England looking forward. Agents’ reports expect ‘consumer spending to slow next year’ due to higher inflation. The report says there will be only ‘small increases in investment over the coming twelve months. Many companies were choosing to hold a larger amount of cash given high levels of uncertainty.’
• Bank of England. Says ‘input cost inflation had picked up sharply. That was expected to start affecting consumer prices more noticeably in the New Year. Wage growth had remained stable, but some contacts expected upward pressures, including from higher inflation next year.’
• Deloitte has apologised over a leaked memo in which it suggested that the government did not have any plan for Brexit. It says ‘the note was for internal audiences and was not a Deloitte point of view’
• House prices could rise 3% next year reports RICS. Real incomes could fall but shortage of supply is the major driver. Supply problems (and house prices) should ease if some EU workers return home post Brexit
• Kingston Smith reports on Brexit survey. Says 31% see UK as worse off post Brexit vote vs 11% better. Some 58% see little change or don’t know what’s going on.
• Kingston Smith survey: Some 9% of respondents more likely to invest in their firms vs 20% less likely to spend
• Kingston Smith survey: Nearly 40% believe talent pool post Brexit will shrink vs c3% who think it will increase
• Kingston Smith survey: Nearly 60% of respondents see economy as weakening post Brexit vs c25% who see it strengthening
• Gov. borrowing down in Nov y-o-y to £12.6bn (vs £13.2bn) but drop less than expected.
• Italian parliament approves €20bn bailout for its banks
• UK car production rose to its highest level in 17yrs in November with c170k vehicles produced in the month.
• Year to date car production in the UK is 1.61m vehicles, up 9.6% on the same period last year
• Eurozone confidence rose to a 20mth high in December
• World markets: UK fractionally lower yesterday & Europe also down. US lower and Far East mostly down in Thursday trade
• Brent down a shade at around $54.65
• Sterling $1.2361 vs US dollar. Sterling half a cent or so weaker against vs Euro at 1.185 per Euro
• Long rates down a shade. 30yr bond in US -3bps at 3.12% with 10yr UK gilts yielding 1.39% (down around 1bp)
YESTERDAY IN A NUTSHELL – SELECTION OF TWEETS, LIVE TWEETS ON WEBSITE:
• ALMR and CGA Peach’s Future Shock concludes that Brexit and rising costs will present on-trade operators with challenges next year
• CGA says ‘it has not been an easy ride for operators in the eating and drinking out markets in 2016’
• Punch CEO Duncan Garrood says 2017 will bring change and opportunity thanks to major developments including pubs code & Brexit
• Employers have so far resisted cutting jobs in response to minimum wage increases, with just 2% of companies having sacked staff
• UK retail sales grew at their fastest pace since September 2015 in the year to December, according to the CBI
• easyHotel has acquired the 999-year leasehold of a site at 57-65 High Street in Sheffield
• Carnival FY & Q4: Reports adjusted net income $2.6bn or $3.45 EPS vs $2.1bn or $2.70 EPS for the prior year
• CCL FY. Re outlook ‘cumulative advance bookings for first 3Qs of 2017 are well ahead of prior year at considerably higher prices’
• CCL FY. Says re 2017 ‘net revenue yields in constant currency are expected to be up approximately 2.5% compared to the prior year’
• CCL FY. Re 2017 says ‘adj. EPS is expected to be in the range of $3.30 to $3.60, compared to FY 2016 adjusted EPS of $3.45’.
• The airport baggage handlers’ and check-in staff’s planned strikes for Friday and Christmas Eve has been called off
• Uber lost more than $2bn in the first nine months of the year as it poured money into expanding its taxi-hailing app across the world.
• UK PM Theresa May has said she will address the needs of industry once a deal on Brexit has been struck. Possibly the wrong way round.
• Later tweets: Gold down, oil up. Gold/oil (number of barrels to buy an ounce) down to 20.4. Was >34.4 in March. Not a year for the gold bugs
• Comments on retail spending are all over the place. Retail Economics says +2.8% Nov on Nov. ONS says 6.1%, BRC says 1.3%
• New Year’s Eve less of a thing these days. But New Year’s Angst is gaining in popularity. Perfect Storm now overused as a moniker
RETAIL NEWS WITH NICK BUBB:
• Today’s Press and News: Pretty thin pickings in the papers again today, in terms of Retail stories, but the News pages of the Telegraph flag that John Lewis has dismissed reports that it has brought forward its “click-and-collect” cut-off date before Christmas and that an estimated 8.9m British shoppers have not yet bought a single Christmas present, according to the shopping mall operator Intu. And the Guardian interviews Mike Coupe, the boss of Sainsbury’s, discussing how Sainsbury’s has fought back against the discounters, who he says are “now under pressure”, and has planned for the future by buying Argos. There are also a few snippets about the overnight GFK Consumer Confidence survey (see below). Today has brought the interim results from the loss-making Indian Online fashion retailer Koovs (which is listed on AIM).
• GFK Consumer Confidence: The monthly GFK Consumer Confidence survey came out earlier than expected overnight and, as forecast, last month’s weak -8 overall index edged up to -7. In the press release, Joe Staton, the Head of Market Dynamics at GfK, says: “While consumers remain relatively confident about their personal financial situation, confidence in the general economic situation for the UK has collapsed in the face of uncertainty about the future both at home and abroad…Looking ahead to 2017, against a backdrop of Brexit negotiations, the decline in the value of sterling, and the prospect of higher inflation impacting purchasing power, we forecast that confidence will be tested by the storm and stress (“Sturm und Drang”) of the year to come”.