Langton Capital – 2017-02-14 – TUI Q1 update, cost increases, London hotels & other:
TUI Q1 update, cost increases, London hotels & other:A DAY IN THE LIFE: It might just be me but I think that the word ‘not’ is somewhat underutilised when it comes to political and stock market statements. Particularly when it should be (but isn’t) anywhere near the words ‘confident’ and ‘well-positioned’ etc. But it wouldn’t look good if the phrase ‘we’re confident about the future, have got a clear vision as to what we’re going to do & remain well positioned to succeed etc.’ were interspersed by 3 ‘nots’ would it? This is particularly problematic when politicians consider Brexit and when industrialists talk about trading in 2017/2018 etc. Nevertheless, and here the trick is to move the word ‘not’ about 6 spaces to the left, they’re the best we’ve got and it’s not as if the most important job for these people as they see it is keeping their jobs. Anyway, yesterday, Langton wrote its daily email & then forgot to hit ‘send’. That was something of an oversight. On to the news: PUB, RESTAURANT & DRINKS PRODUCERS: • Diageo has announced plans to open a US version of its St James’s Gate Guinness Brewery in Dublin and will spend some $50m on the brewery and visitor experience at its existing Relay site in Maryland. ‘Opening a Guinness brewery and visitor centre in the US will enable us to collaborate with fellow brewers and interact with the vibrant community of beer drinkers,’ said Tom Day, president of the Diageo Beer Company, USA. • ‘Given the success of our Open Gate Brewery in Dublin and the popularity of beer tourism in the US, we are confident that Americans will welcome the opportunity to come experience Guinness brewing in Baltimore County. We appreciate the support we have received so far from state and local officials and look forward to continuing to contribute to the local community.’ • Burger King and Tim Hortons owner, Restaurant Brands International, has approached Popeyes Louisiana Kitchen about a possible takeover. The news sent shares of the Atlanta-based fried chicken chain sharply higher in afternoon trading and implies Restaurant Brands believes it has international potential. Popeyes shares jumped 14% to $75.30 for a market capitalization of c$1.6bn and Restaurant Brands shares rose 4% to $70.12 making its market cap c$32.34bn. • China’s wine production declined for the fourth year in a row to 11.37 million hectolitres 9-1% year-on-year) according to figures from ASKCI.com. Major wine-making regions in China including Ningxia, Xinjiang, Shandong, Hebei provinces have all reported varying levels of production loss due to adverse weathers and local farmers’ replanting of vines with other crops. • Tesco is being forced to check display prices across its 3,500 stores in the UK after a BBC investigation discovered out of date on-shelf promotions in some two-thirds of stores visited. The undercover reporter was overcharged in 33 of the 50 stores due to a raft of marked promotions that were out of date and no longer valid at the checkout. • Food Retailer Operations Limited, the operator of 34 Budgens stores is reported to have gone into administration. The company had itself picked up the stores for the (then in administration) Co-operative. Separately the administrators of Spar-branded chain High Noon continue to sell stores. Last year Morrison’s exited the C-store market. The purchaser of its units, My Local, went into administration in June 2016 suggesting that there may be a bit of a pattern developing here. Margins in the C-store market may not be what they were cracked up to be. INFLATIONWATCH: • The ONS will announce the RPI and CPI for January this morning at 9.30am. Forecasts suggest CPI will go to 1.9% from 1.6% • Inflation forecast to hit highest level for two and a half years later this morning. Will go higher. • Bank of England expects inflation to rise to 2.8% later this year before falling to 2.4% next year. This presupposes that hard-hit consumers are not able to push through wage rises (which in a tightening labour market is possible), and that these are not then put through by companies via higher prices. • Which Car reports car prices have risen by 5.2% on average since 23 June. Which says ‘we knew average prices were going up, but rather than a gradual rise, our research has shown that there has been a perfect storm of elements that has conspired to create a big bang in price hikes.’ • Reuters has polled manufacturers & concludes input prices are rising at an annual rate of 18.3%. • The miners are booming for the very good reason that industrial metals prices are on the up. This is in $$s. • Sterling is off the bottom. This may mitigate future cost increases. TUI Q1 TRADING UPDATE: • TUI Q1: Turnover +8.5% (constant currency) at €3.3bn with underlying EBITA loss of €60.3m vs loss of €80.4m last year • TUI Q1: Group reports Q1 debt of €1.5bn, down 19% from €1.9bn last year. • TUI Q1: Group numbers exclude Hotelbeds (sold Sept 2016) and Travelopia, which is for sale & discontinued • TUI Q1: Co says seeing ‘continued growth in our hotel, cruise and concept brands plus the delivery of further merger synergies resulting in a reduction in the seasonal underlying EBITA loss.’ • TUI Q1: Group confirms it has agreed to sell Travelopia for an EV of £325m or 14.4 times 2015 / 16 underlying EBITA. • TUI Q1: Co says ‘our scale and integrated business model give us a strong competitive advantage, leaving us well placed to continue to deliver our growth strategy, against what continues to be an uncertain geopolitical and macroeconomic backdrop.’ • TUI Q1: Says ‘current trading remains in line with our expectations, with continued growth in revenues and bookings in most Source Markets, further openings planned in our hotel and concept brands and the launch of two cruise ships this Summer.’ • TUI Q1: Co reiterates guidance of ‘at least 10 % growth in underlying EBITA’ in the current financial year • TUI Q1: Re current trading, Winter 2016/17 ‘remains in line with our expectations’ with 87% of the programme sold • TUI Q1: Winter: Says ‘UK revenues and • TUI Q1: Summer is also in line with 35% sold. Bookings are +4%. • TUI Q1: Re outlook. Co says ‘we have delivered a good operational performance in Q1 and current trading remains in line with our expectations. We are continuing to deliver our growth strategy, transforming the business as the world’s leading integrated tourism business based on own hotel and cruise brands, with further openings and launches planned for the coming year.’ • TUI concludes ‘based on our Q1 performance and current trading, we are therefore pleased to reiterate our balanced guidance of at least 10 % growth in underlying EBITA in 2016 / 17.’ LEISURE TRAVEL & HOTELS: • STR’s preliminary January 2017 data for London suggests a sharp pick-up in performance on weak comparatives, with demand up by 8.8% as supply grew by 2.8%. Occupancy increased 5.8% to 70.5% and the average daily rate rose by 5.7% to £127.84, meaning revenue per available room jumped 11.8% to £90.08 for the month. The 70.5% absolute occupancy level would be the highest for a January in London since 2008, while ADR would be the highest for a January since 1994. • This is potentially big news for London pub operators, restaurateurs, Merlin Entertainment and others. • It should be taken positively also at budget hoteliers (WTB, EZH). It highlights as noteworthy slightly downbeat comments from GNK & MAB, both of whom have large estates in the capital. • Tui Group has announced the sale of its specialist brands division Travelopia to private equity firm KKR in a deal worth £325m. Travelopia has an annual revenue of €1.171bn and EBITDA of €50m. • Holidaymakers are booking earlier to beat any further falls in the value of sterling should it drop after Article 50 is triggered. Since Brexit, it is estimated holidays in Europe cost an extra 15% following plunges in the value of the sterling. • Heathrow Airport accounted for 5.74 million passengers in January, up 4.2% year-on-year, as the rate for passengers and cargo more than doubled in H2 of last year. • Gatwick’s passenger numbers grew to 2.8 million in January, thanks in part 12.1% bump in long-haul routes. Airport CEO Stewart Wingate said: ‘Gatwick continues to set new precedents for a single-runway airport – we now serve 43.4 million passengers annually. With more than 20 new routes added to the airport’s destinations last year, driving long-haul growth of +23.2% in January, Gatwick continues to demonstrate the benefits of competition in the London airport market.’ OTHER LEISURE: • All Star Lanes grew revenues by 5.7% to £15.3m in 2016 (2015: 3.1% to £14.5m) A Christmas revenue jumped by 13.5% year-on-year. Christian Rose, Managing Director of All Star Lanes, commented: ‘2016 was a year of record growth for the group and one that marks a new phase of re-investment for All Star Lanes. A strong foundation of managerial and operational performance over the last two years has meant we have been able to focus on the brand’s future, investing in the development of an integrated visual brand identity, the £700k refurbishment of our landmark Brick Lane and Holborn venues as well as the agreement of terms on two new locations.’ FINANCE & MARKETS: • The European Commission reports that UK GDP growth will slow this year to 1.5% and slip further to 1.2% next year. The EC blames uncertainty caused by the 23 June vote to leave the EU. Brexiters may say that the EC has an interest in talking down the UK’s prospects. Remainers will say that it is talking sense. • EC reports Eurozone growth to accelerate to 1.8% next year whilst UK slows to 1.2%. EC reports re the UK that ‘business investment is likely to be adversely affected by persisting uncertainty while private consumption growth is projected to weaken as growth in real disposable income declines.’ • UK 10yr gilt yield up to 1.29% from 1.26% yesterday. • Sterling a little better vs US$ at $1.2544. Up a shade vs Euro at 118c. • Reuters reports factory investment is likely to fall in UK as the level has historically been inversely linked to input prices • World markets: UK & Europe up yesterday as banks boom. US higher but Far East mostly lower in Tuesday trade PAH, HUMBUG: • Consumers may be borrowing ‘too much’. Sure, they can avoid distress with interest rates at these levels but what about tomorrow? • Everything takes longer than you think. Hofstadter’s Law. Northern Rock failed in Sept 2007 but economy didn’t hit rocks till Q2 next year TODAY IN A NUTSHELL – TWEET VERSION & YESTERDAY’S LATER COMMENTS: • Diageo has announced plans to open a US version of its St James’s Gate Guinness Brewery in Dublin • Tesco is being forced to check display prices across its 3,500 stores in the UK after a BBC investigation • ONS will announce the RPI and CPI for January this morning at 9.30am. Forecasts suggest CPI will go to 1.9% from 1.6% • Which Car reports car prices have risen by 5.2% on average since 23 June. Says is ‘big bang’ in price hikes • TUI Q1: Turnover +8.5% (constant currency) at €3.3bn with underlying EBITA loss of €60.3m vs loss of €80.4m last year • TUI Q1: Group confirms it has agreed to sell Travelopia for an EV of £325m or 14.4 times 2015 / 16 underlying EBITA. • TUI Q1: Says ‘current trading remains in line with our expectations’ & group will deliver at least +10% u/lying EBITA this year • STR’s preliminary January 2017 data for London suggests a sharp pick-up in performance • The European Commission reports that UK GDP growth will slow this year to 1.5% and slip further to 1.2% next year. • Later tweets yesterday: Industrial metals prices hitting new highs, miners lift market (again). They dominated Leader Board on Friday, also • Borrowing & ‘innovative’ finance (payday loans, cash 4 gold, PCP leasing) squeezing last drops from consumer lemon. How’s that gonna end?? • Guardian asks are subprime car loans ‘driving us’ (their pun) to next crash? Not daft question. Not daft at all. Why not securitise ‘em??? RETAIL NEWS WITH NICK BUBB: • Next: When we saw the title “Directorate Change” in the announcement by Next this morning our heart skipped a little beat: was this Simon Wolfson bowing out as CEO at last, on Valentine’s Day? Or was ex-Product Director Christos Angelides returning to the fold? Well, no, it was just the veteran non-exec Chairman John Barton deciding to retire. He will be replaced by a heavyweight business leader, albeit one with no Retail experience, in the form of Michael Roney, who was CEO of Bunzl until his retirement in April 2016.
• DFS and Advent Watch: We noted yesterday that Berenberg, the broker that arranged Friday’s final placing of DFS shares by the private equity fund Advent had, coincidentally, published a detailed Buy report on DFS…And, notwithstanding the uncertain outlook for big-ticket retailers, there are others in the City who think that DFS is an undervalued cash generation machine. But since the £540m IPO in March 2015 (five years since Advent had bought DFS for c£500m) anybody wanting to buy DFS shares has found no shortage of supply, as the hapless Advent has been dumping stock at regular intervals…which may be why the shares have been such disappointing performers since the IPO at 255p…Back then Advent had been left with more stock than they had envisaged (just over 50% of the enlarged equity), as the IPO offer price was struck near the bottom of the 245p-310p range. In Oct 2015 Advent sold
• Marks & Spencer Over-charging Watch: Poor old Tesco has got into trouble for over-charging customers at the till by not updating in-store promotions, but they’re not the only retailer with IT problems…Ten days ago one of our correspondents flagged that he had been lured in to the M&S Marble Arch Food Hall by a “Buy three Thai curries for £10” deal, but this promotion had failed to be picked up at the checkout…And then on Saturday Mrs B went to M&S Kew Retail Park to get a “Dine in for 2 for £20 Valentines’ Day” meal deal to eat with her beloved husband on Saturday night and reported that this had also not been recognised at the checkout, ie after inspecting the till receipt she realised that she had been over-charged by more than £7! Fortunately, the slow-cooked duck legs with chunky chips etc went down pretty well, but even so…Has anybody else had this problem recently |
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