Langton Capital – 2017-01-18 – JD Wetherspoon, Premier Foods, Brexit, inflation & other:
JD Wetherspoon, Premier Foods, Brexit, inflation & other:A DAY IN THE LIFE: So, it’s nice to know that the ink in my printer is still alive and well about a month after my screen started to flash to tell me that it was running out. In fact, the countdown, from c500 sheets right down to a red-flashing ‘less than 50 sheets’ should now be in minus figures to the tune of around 1,000 sheets and the printer ink industry should have £100 plus of my money in its pocket. But that didn’t happen as, in the spirit of Brexit, I eschewed the opinion of the experts and carried on regardless. I maybe shouldn’t take the same approach re the oil warning light in the car – or the economy for that matter. Anyway, it’s time for the news but if you would like to come off this email list please simply hit the unsubscribe button above. 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JD WETHERSPOON – Q2 TRADING UPDATE: JD Wetherspoon has this morning updated on trading for the period comprising the 13wks to 15 Jan 2017 and our comments thereon are set out below: • Headline Numbers: • JD Wetherspoon updates on trading saying that LfL sales in the first 12wks of Q2 rose by 3.2% • Total sales rose by 0.7%, the lower number impacted by the number of pub disposals during the period. • More on Trading: • JDW reports ‘we expect the operating margin (before any exceptional items) for the half year ending 22 January 2017 to be around 8.0%, 1.7% higher than the same period last year.’ • Chairman JDW criticises economic commentators as having ‘catastrophically poor judgement’ • He says ‘the Company anticipates significantly higher costs in the second half of the financial year. On an annualised basis, these are expected to rise by about 4% for wages, by £7m for business rates and by £2m for the Apprenticeship Levy, in addition to cost increases at around the level of inflation in other areas.’ • He says ‘as previously announced, the Company intends to increase the level of capital investment in existing pubs from £34m in 2015/6 to around £60m in the current year.’ • Mr Martin concludes ‘in view of these additional costs and our expectation that like-for-like sales will be lower in the next six months’ • He says ‘the Company remains cautious about the second half of the year’ but adds ‘nevertheless, as a result of modestly better-than-expected year-to-date sales, we currently anticipate a slightly improved trading outcome for the current financial year, compared with our expectations at the last update.’ • Balance Sheet, Debt & Outlook: • JDW reports it has opened two new pubs since the start of the financial year • It has sold 21. • JDW adds ‘we intend to open 10 to 15 pubs in the current financial year.’ • Re disposals, JDW comments ‘we have now sold the majority of those pubs which had been put on the market in 2016, with a remaining small number which is either ‘under offer’ and going through the sales process or being marketed by our agents.’ • JDW says it ‘remains in a sound financial position.’ • It says ‘net debt at the end of this financial year is currently expected to be around £50m higher than the level at the last financial year end, partly as a result of the purchase of an increased number of freehold reversions.’ • Langton View: JD Wetherspoon reports that the outcome for the current year should be ‘slightly improved’ versus its earlier predictions. • Margins are also higher in Q2 than they were a year ago and this should come as a relief to some. • LfL sales are currently good but will fall in Q3 and Q4. This is partly as a result of tough comps. • Overall, trading is perhaps slightly ahead of expectations but, as the group’s shares have been strong, this may not be sufficient to push them higher. • The group’s shares are trading at around 17x earnings which and look to be relatively fully-priced PUNCH TAVERNS’ BID TIMETABLE: • Punch confirms the Scheme Document, whereby it is to be taken over by Patron & Heineken, has been posted to shareholders. Punch reports ‘a circular in relation to the Scheme (the “Scheme Document”), setting out, among other things, a letter from the Chairman of Punch, the full terms and conditions of the Scheme, a statutory explanatory statement, an expected timetable of principal events, notices of the Court Meeting and General Meeting and details of the action to be taken by Punch Shareholders, will be published today on the Punch website.’ • Later in its statement, Punch says the full document may not be available online until 12 noon today (Wednesday). • No doubt this will be a fulsome document. We’re particularly interested to see if there is a break fee payable in the event of a rival bid • Punch reports General Meeting to consider bid will take place on 10 Feb 2017. • Punch timetable now clear. Emerald (or anyone else) must now make clear their intention to bid by 5pm on 3 Feb 2017. By this date, Emerald will need to ‘announce a firm intention to make an offer for Punch in accordance with Rule 2.7 of the Code or announce that it does not intend to make an offer.’ PUB, RESTAURANT & DRINKS PRODUCERS: • The BBPA has described Theresa May’s Brexit speech as ‘heartening’ in light of the Prime Minister’s appreciation for the value of the UK’s food and drinks sector. BBPA Chief Executive Brigid Simmonds commented: ‘It will come as relief to many working in our industry that, in leaving the EU, Britain will look to ensure that those already working in the UK have the right to remain here. Around 20% of workers in our pubs are not UK nationals, and it’s important to note that in metropolitan areas, particularly London and the South East, this figure will be much higher. It is important that British firms, particularly in the beer and pub sector, can continue to seek international talent for soft skills shortages, including non-graduates, in the UK, and we await further details of how any new work permit system might work.’ • The ALMR is calling on the government to implement ‘comprehensive reform’ of business rates to pubs and bars who ‘currently face enormous business tax burdens, around a third of turnover for pubs.’ • Deliveroo has announced a 650% leap in orders in 2016 despite growing competition in its sector from the likes of Uber and Amazon. The group says it will increase its workforce by about a third in the coming year from its current total of more than a thousand. New recruits will go into areas including software engineering, behavioural economics and algorithm development at Deliveroo’s new Cannon Street office in London. The four-year old company made an £18.1m loss in 2015 as it scaled up its overseas ambitions and now joins Facebook, Google, Apple, and Amazon in pledging to invest in UK workforce or offices. • Local Data Company figures show that pubs remain the most popular leisure venue in the UK, although coffee shops and eateries continue to take share. The number of centre bars, pubs and night clubs fell by about 2,000 between 2011-16 but cafes, fast food outlets and restaurants have gone up by 6,000 across. The West Midlands, Yorkshire and the Humber and Wales recorded the highest growth in leisure businesses, while Greater London was the only area which showed a decrease (-0.3%). • Fast-growing Chinese takeaway and delivery chain Hotcha has opened its first store in Newbury and 13th in the UK. James Liang, Co-Founder and CEO of Hotcha said of the group’s vision: ‘Our ambition is to become the first national Chinese takeaway chain in the UK and the opening our 13th store in Newbury is a natural step as we continue our rapid growth from our beginnings in Bristol five years ago. Following our recent £7.5m funding round, we are well positioned to deliver our pipeline of a further 20 stores openings across the UK in 2017.’ • Mitchells & Butlers is launching a burgers-and-steaks fast casual concept called Son of Steak later this Spring, per MCA. The first site is slated for a March opening in Trinity Square’s Harvester in Nottingham. • Coca-Cola Zero Sugar will benefit from a £4.5m advertising campaign showing the drink still carries the ‘iconic taste and refreshment’ of Coca-Cola Classic. Coke Zero was rebranded and reformatted to Coca-Cola Zero Sugar in April last year after too few consumers realised the drink was sugar-free, with £10m spent on the project at the time. • CVS research indicates that the average small shop will see rates bills rise by some £3,663 over the next five years. • Premier Foods updates on trading saying ‘sales in our third quarter were weaker than expected despite a strong December.’ • PFD says ‘we now expect category performance to remain challenging during the fourth quarter and as a result sales will be below previous expectations.’ • PFD on inflation. Says ‘recovery of significant input cost inflation in certain areas is taking longer than originally foreseen.’ • PFD expects Trading Profit for FY16/17 to be c10% below previous expectations.’ It will cut costs further. Debt y/e to be £525m. • PFD: Grocery sales 1.9% lower will feed concerns that brands are tired. Multi-buy promotions are down. International sales good, Sweet Treats up. Group says cost cutting ‘programme will support the Company’s twin goals of delivering Trading profit and free cash flow while continuing to invest in innovation and consumer marketing.’ LEISURE TRAVEL & HOTELS: • UK cottage operator Sykes Cottages has seen January bookings jump by 32% year-on-year, with the Lake District and Wales proving popular destinations. Business has been driven arguably by the rerating of sterling, with UK citizens looking to holiday at home and overseas visitors seeking to take advantage of exchange rates. • An inquest into the Sousse, Tunisia terror attack has heard that an attach three months previous had led to fears of a ‘copy-cat’ incident, although FCO guidance was not updated at the time. Instead of warning people against travelling to Tunisia for any reason, the FCO decided to ‘strengthen’ the language of its advice. • InterContinental Hotels Group (IHG) has appointed Mike Robinson as general manager of Amsterdam’s Kimpton De Witt, set to open in Spring 2017. • ABTA has said ‘the government must ensure the UK has continued access to the “liberalised” European aviation market following Theresa May’s decision to pull the UK out of the single market’. • BHA calls for ‘a 10-year implementation period for any changes and warned the hospitality and travel industry could be the worst hit by Brexit.’ • BHA warns that it employs 700,000 EU workers. It needs access to staff. OTHER LEISURE: • Ladbroke Coral has updated on trading saying that it remains in line with expectations despite a poor December FINANCE & MARKETS: • UK inflation as measured by the CPI rose to 1.6% in December from 1.2% a month earlier. Economists had been looking for 1.4%. The ONS reports ‘this is the highest CPI has been for over two years, though the annual rate remains below the Bank of England’s target and low by historical standards.’ • Further rises are in the pipe. Premier Foods, amongst others, is negotiating with supermarkets re price increases • RPI is up to 2.5% from 2.2% in November • The ONS has reported that the annual pace of house price inflation rose to 6.7% in November from 6.4% in October • The Office for Budget Responsibility says it is not likely to be possible to balance the UK budget without tax increases or spending cuts. The OBR’s Fiscal Sustainability Report says state pensions & the NHS will grow faster than GDP. Public debt could increase from 82% of GDP now to 234% in 50yrs. • Theresa May has confirmed that the UK is to undertake a Hard Brexit. We will leave the single market in two years • Special deals may be sought for the UK car industry & for the City of London. No deal is said to be better than a bad deal • Moody’s has said it is unclear whether a tariff-free deal will be possible. Euro sceptics say we should press ahead with Brexit in any case • NIESR’s Prof Jagjit Chadha comments ‘as soon as the UK establishes its independent WTO status, we would lose automatic access to the EU’s trade agreements with 50 countries. The UK would be confronted with a large number of trade agreements to negotiate, where the ones with the WTO and the EU will be the most pressing.’ He says this ‘prolonged uncertainty over forming agreements will present a significant challenge to the economy and one from which consumers cannot be called upon to buy our way out’.’ • NIESR’s Dr Heather Rolfe says ‘we are aware of a concern that new immigration policies will restrict their access to labour which has enabled them to expand.’ • NIESR adds says re reductions in immigration ‘it will be difficult for these to be achieved without damage to the economy.’ • NIESR adds ‘leaving the customs union might disrupt the supply-chains in which UK manufacturing participates.’ • Brexit speech. Eurosceptics broadly happy with comments. • World markets: UK sharply down yesterday with Europe also lower. US down and Far East mostly lower in Wednesday trade • Brent little-changed at c$55.65 per barrel • Sterling up yesterday on Hard Brexit speech. Trading at around $1.2335 vs US$ and 115.4 vs Euro • UK 10yr bond yield unchanged at 1.31%. US 30yr treasury yield down around 6bps at 2.93%. TODAY IN A NUTSHELL – TWEET VERSION & YESTERDAY’S LATER COMMENTS: • JDW Q2. LfL sales +3.2% with margins higher. Cautious on outlook for H2. Both costs and LfL sales. • JDW ‘anticipates significantly higher costs in the second half of the financial year.’ • JDW says is in ‘sound financial position.’ Buybacks mean debt will be some £50m higher this year • Punch confirms the Scheme Document, whereby it is to be taken over by Patron & Heineken, has been posted to shareholders. • Punch timetable now clear. Emerald (or anyone else) must now make clear their intention to bid by 5pm on 3 Feb 2017 • Mitchells & Butlers is launching a burgers-and-steaks fast casual concept called Son of Steak later this Spring • Theresa May has confirmed that the UK is to undertake a Hard Brexit. We will leave the single market in two years • ABTA has said ‘the government must ensure the UK has continued access to the “liberalised” European aviation market • BHA calls for ‘a 10-year implementation period for any changes and warned the hospitality & travel industry could be worst hit by Brexit.’ • UK inflation as measured by CPI rose to 1.6% in Dec from 1.2% a month earlier. RPI is up to 2.5% from 2.2% in Nov • The ONS has reported that the annual pace of house price inflation rose to 6.7% in November from 6.4% in October • The Office for Budget Responsibility says it is not likely to be possible to balance the UK budget without tax increases or spending cuts • Later tweets: Daily email free on website. Original & best. Now incl. tweets. News, views & analysis. Sign up & no strings. www.langtoncapital.co.uk • Are we missing something or is Hotel Chocolat simply very, very expensive with 7p of earnings, share price nearly three quid? • Good numbers from HOTC but is <15% sales growth enough to support a share price multiple of nearly 40x earnings? • Inflation might be round the corner per Mark Carney. No might about it. Oil +100% since low in dollars but +140% in Sterling • Currency & commodities. Coffee +66% on year in $$s but +101% in Sterling. OJ +51% but +83% in Sterling, Sugar +25% in $$s but +52% in Pounds • ONS reports CPI up to 1.6% in Dec from 1.2% in Nov. Ahead of estimates of 1.4%. RPI up to 2.5% (from 2.2%). Inflation is b-a-a-a-aaaack… • Punch has published the Scheme Document whereby it is to be taken over by Patron & Heineken. Shareholder meeting 10 Feb. • Punch 10 Feb meeting needs 75% special resolution to approve takeover by Patron/Heineken • Punch timetable set. Emerald (or any other rival bidder) now has till 5pm 3 Feb to put in counter bid or walk away. • Punch document to be published either ‘today’ or ‘pre-noon tomorrow’ on website. Will be hefty but need to see if there’s a break fee… |
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