Langton Capital – 2017-03-06 – Service sector, RTN, menu evolution, beer sales & other:
Service sector, RTN, menu evolution, beer sales & other:
A DAY IN THE LIFE:
As we have 5 kids, we’re somewhat expert at observing the relations between siblings.
That’s expert at observing – not explaining, predicting or influencing – but nonetheless we have something to add when it comes to commenting on the argument as to who should sit in the middle, who should have the TV remote, and who might be obliged to travel in the back of the car (admittedly with the dog) on long journeys.
So, it’s with some interest that we’re currently listening in on the argument as to how our daughter’s ‘Child Trust Fund’ should be spent when she hits eighteen.
The argument stretches from clothes, makeup and holidays on the one end to ‘your brothers’ on the other and, since the said Child Trust Fund system didn’t exist in the past, the girl in question’s four brothers do have something of a case if they want to catch up, relatively speaking.
However, as the decision as to where the money goes will ultimately be in their sister’s hands, I think they might be in danger of striking out on that one. On to the news:
PUB, RESTAURANT & DRINK MANUFACTURERS:
• UK service sector growth slowed in February to 53.3 (from 54.5 in Jan) per Markit. Any number >50.0 implies growth. Markit suggests the economy as a whole will grow by 0.4% in the first quarter of 2017. It says the UK economy has “lost momentum” after “impressive” growth in Q4 last year. Markit says ‘a further slowdown in UK business activity growth in February adds to evidence that the economy has lost momentum after the impressive expansion seen at the end of last year.’ It adds ‘inflationary pressures remained the highest for six years as firms struggled with rising costs associated with the weak pound, but optimism about the year ahead remained elevated by recent standards.’
• Restaurant Group reports full year numbers on Wednesday. A cut in the dividend & further write downs are likely. See Friday email
• Lynx Purchasing reports a menu ‘Spring Clean’ is ‘essential to tackle food inflation.’ It says ‘foodservice operators will need to rethink many core menu items in order to protect their business from inflation and other rising costs in the months ahead.’
• Lynx reports ‘we’re urging operators to give their menus a thorough ‘spring clean’ in order to identify dishes where they can build in a defence against the impact of rising costs.’ It says ‘for example, the widely-reported problems with salmon supplies, which are expected to mean volatile prices and smaller fillets until the autumn, favours operators who can keep their offer flexible in terms of the fish species they use, using specials boards to highlight the best fish, both the British catch and imported varieties.’ Shrinkflation may be the solution of choice for a number of operators.
• Moody’s reports that McDonald’s proposed shareholder return of c$24bn over the next 3yrs is credit negative as ‘it incorporates additional debt.’ Moody’s says, however ‘we do not expect a deterioration in McDonalds’ credit metrics versus our previous expectation of leverage at around 3.4x as improved operating performance and cost efficiency efforts drive stronger earnings.’
• Moody’s reports that AB InBev’s results are ‘credit negative because ABI will need to deleverage from a higher level than it had originally expected.’ Moody’s reports ‘ABI said it faced greater-than-expected pressures in several markets, including China, South Africa, Columbia and particularly Brazil, where EBITDA declined nearly 20% because of the difficult macroeconomic environment.’
• Local Government Association has called for a lowering of the drink-drive limit in England & Wales from 80mg to 50mg
• Piper Private Equity has taken a large minority position (c£10m) in Flat Iron, valuing the ‘single-steak’ dining concept at c£20m, the MCA reports. Flat Iron currently has four sites in operation and is believed to record a combined average sales of c£210k per week.
• Darwin & Wallace have appointed Polly Barnes as Operations Director to support the bar chain’s growth strategy. The group, which operates pubs and bars in London villages, is set to open its fifth site this summer in Battersea Power Station’s Circus West Village and has further sites in its pipeline for 2017 and 2018. Mel Marriott, Darwin & Wallace, Managing Director commented: ‘I am very happy to welcome Polly – it is a testament to our existing team that we have managed to achieve so much in the last four years. Polly’s energy, experience and enthusiasm mirrors ours and will make a formidable addition.’
• Delivery services and transport hubs are among the big opportunities for restaurants, pubs and bars this year, according to the 2017 Business Leaders’ Survey from CGA Peach. The poll of around 250 senior execs finds that more than half (54%) think services like deliveroo and Just Eat are well positioned to thrive in the next year, while other identified trends include the rise of craft beer, spirits, and coffee, and vegetarian eating.The survey also points to renewed caution in the sector as a result of rising cost pressures.
• British beer exports grew by an encouraging 6% in 2016, per new data from HMRC, with beer exports to China rising by some 500%. Exports to India similarly rose 417%, meaning overall exports to non-EU nations grew by 6% and exports to the EU rose by 5%. British Beer is the UK’s third most valuable food and drink export, with a value of £584m (+84m year-on-year), leading the BBPA to call for a tariff-free trade deal with the EU that does not create additional red tape or barriers to trade.
• Almost two thirds of UK beer exports (currently) go to the EU.
• Thai café chain Rosa’s has lined up three new sites in London for 2017 and is also participating in a trial site with Deliveroo’s RooBox scheme, per MCA. The group currently has eight sites, with the most recent having opened in Brixton.
• Britvic has successfully completed its R$218m (£56.8m) acquisition of Bela Ischia, a Brazilian consumer brand with revenue of R$160m and EBITDA of R$18.5m in 2016. The combined businesses are expected to realise cost synergies of R$10m, principally from efficiencies in procurement, production, logistics and administration.
• The home delivery market is now worth £3.6bn and is growing ten times faster than the eating-out market, per data from the NPD Group. Delivery at the end of 2016 was up 6% on the previous year and 50% since 2008, and NPD predicts the market could reach £5.3bn by 2020.
HOLIDAYS & LEISURE TRAVEL:
• Advances in artificial intelligence technology are bringing the virtual travel agent closer to reality — and the pace of development is set to accelerate. The recent Travel Technology Europe showcased how AI will increasingly automate many tasks traditionally done by humans, with notable developments including the rise to prominence of intelligent interactive voice-controlled devices such as Amazon’s Alexa and chatbots.
• Irish hotel group Dalata reported a 28.8% rise in revenue to €290.6m (£247.6m) and 55% rise in pre-tax profits for the year to 31 December 2016. Dalata plans to expand aggressively across the UK and is ‘having detailed discussions with developers and landlords [in the UK] and we hope to ramp that up as the year goes on’.
• AccorHotels has completed a €60 million deal covering the management of 26 hotels in Brazil, boasting 4,400 rooms across the economy, midscale and luxury segments.
• Mandarin Oriental has posted net profits of $55.2m in the year to 31 December, with revenue falling 1.63% to $597.4m due to softer demand in Hong Kong and Indonesia.
• Uber has lost its attempt to prevent its drivers being forced to take English language tests despite arguing that the standard of reading and writing required is too high. The US firm says it will appeal the ‘unfair and disproportionate’ new rule, which could result in as many as 70,000 applicants failing to obtain a license over three years.
• IAG reported on Friday that RPKs rose by 2.9% in Feb 17 vs the same month a year earlier. Premium traffic rose by 4.7%.
• German inbound tourist numbers grew by 1.4% in 2016 to 80.8m visitors.
• Culture Secretary Karen Bradley is ‘minded’ to order an Ofcom investigation into the planned takeover of Sky by 21st Century Fox.
• Spotify has become the first music streaming service to top 50m paying subscribers. In the last six months alone the company has added 10 million subscribers, keeping it ahead of rivals including Apple Music.
• An article in Barron’s reported that Snap Inc’s share price is overvalued at $27.09, having IPOed last week at $17 raising $3.4bn. The current valuation places Snap Inc at 34 times expected 2017 revenue ($1bn) compared to Facebook which is valued at 10 times projected sales.
• David Lloyd owners are preparing for a £1.3bn sale of the gym group following the recent purchase of multiple Virgin Active clubs. The David Lloyd group currently runs 83 fitness sites in the UK and 12 in the Netherlands, Belgium and Spain.
FINANCE & MARKETS:
• Fed chair Janet Yellen has said that a rise in US rates could be ‘appropriate’ this month.
• WPP, which has its fingers in a lot of pies worldwide, has warned that global growth is ‘tepid’.
• Greece has called on its lenders to lower their sights when asking for money back from the over-borrowed country
o Vauxhall may be sold to Peugeot as early as today. This may lead to layoffs at Ellesmere Port & Luton
o BMW is considering moving production of some Mini brands to Germany
o Nissan is reported to be looking for taxpayer support
o Nigel Farage has said that all EU fisheries rules should be ‘torn up’
o The Times reports UK lawyers as saying that the UK should be able to leave the EU without paying a multibillion-pound “divorce settlement”
o The Chancellor is reported to be set to put aside up to £60bn to pay for the costs of leaving the EU
o BBC reports consumer overconfidence is a bit of an issue. Credit card debt is hitting new highs
o Overall economic background is less bad than feared post 23 June. Growth is based on consumer borrowing
• Eurozone economic activity is rising at the fastest pace in 6yrs
• Brent $55.60 (down from $55.20)
• Sterling up vs US$ at 122.83c but down vs Euro at 115.84c
• 10yr UK gilt yield down to 1.18% from 1.21% on Friday
• World markets: UK & Europe lower on Friday but US up. Far East mostly up in Monday trade
• Later tweets: Restaurant Group dividend cut looking likely (says Langton) as co conserves cash to pay for refurbs, menu engineering, closures etc.
• 90% chance of US rate rise this month per gamblers. When will UK rates first rise? Betting is on 18 going into 19. We’d bet sooner
• Euro inflation (2%) hits 4yr high, UK gilt yields rising again, US rate rise week after next. Long march up in rates & prices underway
• Billionaire Snapchat keyboard jockey Tom Spiegel (26yrs) makes Zuck look like an old man. What does that say about Langton, we wonder?
• BDO High Street Tracker says sales pants this week. Sure, it’s one week, but fashion down 4.5% as delivery +11.5%
• BDO High St sales tepid. AKA down. What’s that say about me-too, retail park F&B? It’s not like falling off a log, need to remain relevant
• Evolution necessary, change the only constant. But, Jamie, here’s a thought; don’t bank on a plonker concept like Union Jack’s
• IFS predicting tightest & longest consumer squeeze in 60yrs. Thanks for that.
• PM May says SNP got ‘tunnel vision’ re independence. Well, duh? Clue’s in the name. Also, patronising the Scots? That’ll work, won’t it?!
• Posh southern English lady visits Scotland, patronises natives. Tells them what she thinks they should think. Whose bright idea was that?
RETAIL NEWS WITH NICK BUBB:
• Saturday Press: There wasn’t a great deal of news for the Saturday papers to get their teeth into, although the Guardian highlighted that Sainsbury’s is to cut 400 jobs in a shake-up of supermarket management. The FT had a prominent feature about the embattled Philip Green and Arcadia, in the light of his BHS pension rescue, headlined “Green faces test in art of dealmaking after BHS”, flagging that analysts say potential buyers are unlikely to view the Arcadia business as a prize asset, but, despite some interesting quotes from insiders, the article missed several obvious targets and pulled a few punches. The FT also had a big article about the Co-op, flagging the arrival of Steve Murrells as CEO, headlined “Tough challenges in store for Co-op’s new chief”. The Telegraph had a snippet about the news that B&Q is to open an experimental High Street DIY store (a 3000 sq ft unit on
• Sunday Press: The beleaguered Philip Green and his struggling Arcadia fashion empire was in the spotlight in the Sunday papers, with the lead Business story in the Sunday Times the revelation that he is “to pump millions into the Arcadia pension fund” (the Mail on Sunday said he will double the contribution to £50m a year). The Sunday Telegraph flagged that the Serious Fraud Office is winding down its investigation into Philip Green, enabling him to get back to the day-to-day running of his business interests. The Sunday Times also had a big feature article headlined “So what next, Sir Philip?”, flagging that although he is said to be “bored” with questions about pensions the BHS pension deal is unlikely to bring him peace, given the trading pressures on Arcadia. The Observer made fun of the fact that poor old Philip is coming up to his 65th birthday and will soon be eligible for his
• In other news, the Sunday Times put a photo of new John Lewis boss Paula Nickolds on the front page of Business section to illustrate a short article about the likelihood that the John Lewis Partnership Bonus is likely to be cut on Thursday from 10% to 7% or 8% (according to “analysts”). Not to be outdone, the Sunday Telegraph put a fashion model photo on the front page of Business section to illustrate the rather obscure news that Jack Wills is to open a store in Germany (although Jack Wills also featured in an article it ran about ethical sourcing in the Fashion industry). The Sunday Times flagged that the clothing chain Fat Face has been forced to seek easier debt terms because of a leap in costs fuelled by the weakness in sterling (“Weak pound puts frown on Fat Face”) and the Mail on Sunday highlighted that the former Asda boss Archie Norman is a front runner to be the next
• Ultimate Products: After the stellar IPO success last week of the US tech firm Snapchat, there will be a slightly more down-to-earth stock market debut today, as noted by the Proactive Investors website, when shares in the manufacturer of the homeware brands Salter, Russell Hobbs, Beldray and the NutriPro smoothie machines start trading in London. The Oldham-based UP Global Sourcing Holdings was valued at £105m in last week’s placing at 128p, but the order book is said to have been substantially oversubscribed and the shares are expected to open at a useful premium, at around 149p. In December, the group appointed Jim McCarthy, the veteran former boss of Poundland, as Chairman, to help steer the business through the stock market flotation. Founded in 1997 by the improbably named Simon Showman, UP was previously backed by the private equity firm LDC, which held a 46% stake. The
• The Grocer Watch (1): The widely followed Grocer “33” weekly supermarket pricing survey in Saturday’s The Grocer magazine saw Asda claim its second big win a row, with its basket of £70.78 coming in nearly £10 cheaper than its nearest rival, Sainsbury, whilst the gap was even wider to Morrisons and Tesco, which were both more than £15 more expensive than Asda. The outcome was skewed by the “big ticket” product in the basket, a leg of lamb joint, with Asda coming in at only £16.78 (versus as much as £28.78 at Waitrose, albeit it was out of stock…), but even allowing for that Asda was notably cheaper and for the second week in a row Asda did not have to give out a Price Guarantee voucher. As usual, Waitrose was in last place, on a hefty £96.84 (37% more than Asda) and there was more bad news for Waitrose in the separate regular Grocer “Mystery Shopper” weekly survey on Store Service
• The Grocer Watch (2): The Grocer magazine also had a one-off test of the relative pricing and in-store experience of the major’s convenience store fascias in the Brighton area, albeit its basket only comprised 9 items (ice cream, wine, lasagne, bread, milk, teabags, spaghetti, crisps and coca-cola!). Here there was better news for Waitrose, as its “Little Waitrose” store came top, with 43 points out of 50 for In-store Experience, and it was the 3rd cheapest on price, at £19.99 (albeit it was out of stock on 2 of the 9 items…). And the front page of the magazine also flagged up a feature on Business Rates with the provocative headline “Is the BRC to blame for new Business Rates fiasco?”.
• John Lewis Partnership Bonus Watch: The JLP Board is likely to be mindful of the fact that underlying profits fell over 10% last year, despite a decent Christmas, and with trading in the new-year off to a sluggish start and costs rising it will have to allow for the fact that profits will probably fall again this year as well: hence the significant pressure on the JLP Bonus that it flagged back on Jan 12th. Logically the Bonus to be announced on Thursday would be 7.5%, given the warning from JLP that the Bonus will be “significantly” lower than the previous 10%, but it has to be a round number, hence our feeling that it will be 7% or 8% (albeit CityAM and the Guardian today flag sources guiding to 6% or 7%). A 7% Bonus would cost about £110m. We expect JLP’s stated PBT to be slightly up from £306m to £310m in y/e January, given the pension funding benefit, but Divisional Trading
• News Flow This Week: A busy week kicks off on tomorrow morning with the BRC-KPMG Retail Sales figures for February (another weak LFL sales outcome is expected; -1%?), closely followed by the latest monthly Kantar/Nielsen Grocery market share figures (covering the 4 weeks to Feb 25th/26th). On Wednesday, we get the Lookers finals, the start of the big “Retail Week Live” industry conference in London and the Budget (with all eyes on Business Rates relief, social care funding and VAT extension). And then Thursday brings the Morrisons finals, the John Lewis Partnership finals and the Signet Q4 results, plus the prestigious “Retail Week” Awards in the evening.