Langton Capital – 2017-04-10 – Brewdog, beer quality, Google holidays, economy & other:
Brewdog, beer quality, Google holidays, economy & other:
A DAY IN THE LIFE:
So, after a glorious weekend, it’s time to get back to work but, and here’s the good news, it’s a short week.
And next week’s a short one too meaning that Langton will have to add 10dys value in just 8 days and, since there are so few companies foolish enough to report numbers in the weeks either side of Easter, that could be a tough one.
Hence we might have to catch up on our reading but, as few companies will be saying anything specific over the next few days, it’s worth strong undercurrents in the hospitality industry that will not be going away any time soon.
Mobile ordering is now a big thing. Ask Wetherspoon, Starbucks, Caffe Nero etc. And it will get bigger and delivery likewise.
And delivery, whether it has the unwelcome side-effect of turning us all into button-pressing couch potatoes or not, will impact High Street footfall (and asset prices, rents etc.) whether we like it or not.
These two factors could be the ‘crazy-off-trade-pricing’ and ‘smoking bans’ of the 2010s, 2020s and we’d better get our ducks lined up accordingly. On to the news:
PUB, RESTAURANT & DRINK PRODUCERS:
• Pizza Pilgrim has reported full year numbers for the year to June 2016. The company, which is not required to post full accounts, reports that its Shareholders’ Funds fell to £871k from £905k a year earlier. This suggests that the six-strong group, which is 11.1% owned by Rupert Cleveley & which also includes industry figures Ian Edward, John Barnes, Torquil Macnaughton and Sean Williams as shareholders, made a loss (or made asset write-downs) of around £34k for the year under review.
• American private equity group, TSG Consumer Partners, has acquired a 22% stake in BrewDog for £213m. Pre-tax profits for BrewDog exceed £7m last year, with the firm expanding into America. Whilst the founders of the business will take some £100m out, more recent investors are restricted in the amount that they will be able to liquidate.
• Chinese alcohol brand Kweichow Moutai has overtaken Diageo Plc. to become the world’s most valuable liquor-company. Moutai, which is best known for brewing the fiery grain-based drink baijiu made popular in China, had a market cap of $71.5bn on the Shanghai exchange on Friday, compared to Diageo’s capitalisation of $71.1bn.
• China’s film industry is at risk of its first annual fall this year since the late 1990’s, on account of slowing economic growth and a lack of hit movies. First quarter film revenues fell by 7% in the country — a key quarter, and typically the biggest in terms of cinema revenues in China because of the Lunar New Year holiday week.
• As beef prices came down from record levels in 2016, food costs fell by 0.6% on average for US publicly traded restaurants, according to data from BDO. However, the data suggests this decrease was offset by a 0.8% increase in labour costs in 2016 and suggests that this increase in labour cost could be an ongoing trend.
• US fast casual have experienced the highest increases in costs, as well as the largest decrease in same sale stores, according to data from BDO.
• Vianet-Cask Marque’s Beer Quality Report suggests that the pub industry misses out on some £700m of profit as a result of beer quality issues. The figures come from a combination of waste, missed till yield, over-ranging and low throughputs, alongside equipment and cellar maintenance failings and lost sales through reduced visits and repeat purchase.
• Better burger chain Five Guys has moved to an £8 minimum wage for its crew members, per MCA.
• American entrepreneur Martha Stewart has branched out from home furnishings into wine delivery. The Martha Stewart Wine Company allows customers to buy bundles of wines from around the world grouped by style, region, and country and includes West Coast wine from California and Washington; a French selection; Italian reds; ‘worldly whites’; the ‘life is sweet’ selection; ‘Martha’s favourites’ and a 12-bottle ‘discovery’ case.
• Moody’s has reported that JAB’s purchase of Panera Bread will substantially increase leverage. It says the deal will be ‘credit negative for JAB, an investment holding company, because it will materially increase net market value leverage…to more than 20% from around 17% at year-end 2016, which is above the 15% net MVL we consider appropriate for a Baa1 rating.’
• Cadbury owner Mondelez has warned that UK consumers could see more shrinkflation and price rises. It says that Britain’s exit from the EU and the associated tumble in the pound has led to pack size reductions.
• Schwartz spices owner McCormick, which took a tilt at Premier Foods last year, is rumoured to be interested in Reckitt’s mustard business.
HOLIDAYS, LEISURE TRAVEL & HOTEL
• Google has begun testing a new package-holidays product and is collaborating with technology companies Distribute Travel in the UK and Peakwork in Germany. The new vertical search category has been available to a proportion of Google users since the beginning of the year. Richard Holden, Google vice-president for product management, said: ‘We can play a big role in the distribution of packages that already exist and create a better dynamic packaging market. There is not great comparison shopping out there in the package holiday space.’
• Ryanair will consider dropping UK domestic routes and has warned that a ‘worst case’ Brexit outcome means no flights to the EU ‘for a period’. Ryanair chief financial officer Neil Sorahan commented: ‘We need Prime Minister May to say absolutely, “We will agree to free movement of people and abide by the European Court of Justice” [ECJ]… The best case scenario would be for Britain to remain in the EU Common Aviation Area. But to do that Britain has to remain within the jurisdiction of the ECJ and the UK has made clear it won’t accept that, except maybe in the short term.’
• Marriott International has announced its intentions to open up seven new hotels in Scotland over the next four years.
• The British Hospitality Association (BHA) has highlighted the ‘major recruitment problems’ that brexit negotiations may cause the hospitality sector. A recent report by BHA estimates that the sector could face a staff shortfall of 60,000 a year. BHA chief executive Ufi Ibrahim stated: ‘It’s clear that hospitality and tourism face major problems in recruitment if there is any major cut in the number of workers allowed to enter from the EU.’
• Swedish police report ‘at least 3 dead’ and more injured after a lorry was driven into a department store in central Stockholm. The incident happened just before 15:00 on Friday. Shots were reportedly fired in another part of Stockholm on Friday, but it is not known if these incidents were connected.
• Lyft, one of the main rivals to Uber, has received $500 million in new funding, valuing the company at $6.9 billion post new money.
• Google’s music streaming service, Google Play Music, has been launched in India.
• Hollywood Bowl shares are now below the group’s 160p IPO price. Shares fell last week on the Electra share placing but finished off their lows.
• Hollywood Bowl has announced that Electra’s board representative, Bill Priestley, has resigned from the Board of the Company with immediate effect. The group says ‘a search for an Independent Non-Executive Director will commence shortly and the Company will provide an update as appropriate.’ Chairman Peter Boddy says ‘on behalf of the Board, I would like to express our thanks to Bill. He has made a significant contribution to the Board’s debates and the development of the Company.’
FINANCE & MARKETS:
• US job growth slowed sharply in March but the country’s unemployment rate still fell to a c10yr low of 4.5%
• Eurozone finance ministers have said that a further austerity agreement with Greece is necessary in order to access further bailout cash. The Greek government insists that the EU is putting the cart before the horse.
• B of England has written to UK financial firms telling them to plan for “all eventualities” from the UK leaving the European Union. It says firms should be prepared to cope if there is a “more extreme” outcome. Boss Mark Carney said on Friday ‘prudent planning means that you have to also plan for a shorter time horizon and a more extreme outcome.’ He added ‘that in no way shape or form is saying that that’s what our expectation is, and certainly we’ll be absolutely clear that is not in the best interest of the EU 27 or the United Kingdom or the global system as a whole.’
• UK industrial activity fell in February per the ONS. It reports that industrial output fell by 0.7% in February having fallen by 0.3% in January.
• ONS reports construction activity in the UK fell by 1.7% in February.
• UK trade deficit worsened in February to £3.7bn from a revised negative £3bn in January. The ONS reports ‘the overall trade deficit worsened, but excluding erratic items, the picture improved, as imports fell more than exports.’
• The Halifax reported on Friday that the increase in house prices slowed further in March to an annualised 3.8%. Rates had risen by 5.1% in the 12mths to end-Feb. The Halifax points out ‘the annual rate of house price growth has more than halved over the past 12 months.’ It says that this is not all bad news as ‘a lengthy period of rapid house price growth has made it increasingly difficult for many to purchase a home, as income growth has failed to keep up, which appears to have curbed housing demand.’
• NIESR suggests UK GDP rose by 0.5% in the three months to end-March. It says ‘we estimate growth slowed slightly in the first quarter of 2017 to 0.5 per cent. A key component of this moderation has been relatively weak retail sales in the first two months of this year. Consumption is expected to moderate further this year as increasing inflation erodes households’ purchasing power. We expect the Bank of England to look through this temporary shock to inflation and for monetary policy to remain accommodative.’
• Brent down a shade at $55.41
• Sterling weaker vs US$ at 1.2381
• Pound down vs Euro at 1.1696
• UK 10yr gilt yields down again. Off by 2bps at 1.08%
• World markets: UK up on Friday with Europe also higher. US down a little but Asia up in Monday trade
YESTERDAY’S LATER TWEETS:
• Later tweets: BDO High Street sales tracker suggests online sales running +20.5% y-o-y after +18.6%. It could be big, this Internet thing…
• Tesco being pressed to sell ‘100s of shops’ if it is to be allowed to buy Booker. Rivals were always going to cut up rough on this one
• SA Brain says coffee sales good but growth has slowed. Blames capacity issues. Managed houses still in 1.5% LfL growth
• Property agent saying dark kitchens won’t impact High Street sales (much). Which side of history would you rather be on there?
RETAIL NEWS WITH NICK BUBB:
• Overall View: Well, tomorrow’s BRC-KPMG Retail Sales for March seem unlikely to be much to shout about, given the impact of the late Easter this year, but a warm April to date should have lifted trading for Fashion retailers…
• NB Just to remind you, “The Daily Retailer” is still being produced this week from the ski slopes of the Rocky Mountains of Colorado (where we are 7 hours behind BST).
• Market trends/share prices: The All-Share index was up by 0.6% on Friday and so over the last 2 weeks the market has been up by 0.4%. That means that so far in 2017 the market is now running up by 3.5% (having risen by 12.5% in 2016).
• Food Retail sector trends: The sector rallied by 1.9% overall on Friday (TSCO +2.4%, MRW +1.5%, SBRY +2.9%, OCDO -7.3%, MCLS +4.8%, WINE +3.9%), but over the last two weeks as a whole the sector has been down by 0.9%. The FTA Food Retail index did well in 2016, outperforming the market by nearly 11%, but so far in 2017 it is still running slightly down, cumulatively, by 2.5%, so it has underperformed by 6% to date.
• General Retail sector trends: Overall the sector was up by 0.3% on Friday (TPT +4.1%, SPD +2.2%, ASC +2.0%, BME +1.1%, KGF +1.0%, SGP +1.8%, NXT -0.7%, MOSB -1.0%, CPR -2.2%). Over last week as a whole the sector was down by 1.0% overall (with Next down by 7.0% and Carpetright down by 5.5%). The FTA General Retail sector did poorly in 2016, underperforming the market by just over 26%, and so far in 2017 it is cumulatively down by 3.3%, so it has underperformed by nearly 7% to date.
• The Grocer Watch: The widely followed Grocer “33” weekly supermarket pricing survey in Saturday’s The Grocer magazine saw Asda romp home the clear winner, with its basket of £56.97 coming in no less than £4.31 cheaper than 2nd placed Tesco. But Asda still had to dole out a chunky £3.47 Price Guarantee voucher, for failing to be at least 10% cheaper than its main rivals. Morrisons came third, 60p behind Tesco, and the guest retailer Ocado came 4th, on £62.72, pushing Sainsbury into 5th place, with a £63.33 basket. As usual, Waitrose was in last place, on £65.22.The separate regular Grocer “Mystery Shopper” weekly survey on Store Service and Availability was won by Sainsbury, as its 50,000 sq ft superstore in Cheltenham came top, scoring an impressive 88 out of 100 (the Tesco store in Birkenhead came bottom of the survey, hurt by poor stock availability). The Grocer also had a survey
• Saturday Press: The front pages of the Saturday papers were split between coverage of the terrorist attack on a department store in Stockholm and the US’s unexpected missile attack on Syria…The News pages of the FT had an interesting article about the contradictory data about the UK economy in Q1 and on its Business pages the FT had a feature on the upheaval in the New York shop property market (as luxury goods stores pull back), as well as a big feature on the news that a handful of private equity groups were set to submit initial bids for The Body Shop (the struggling skincare retailer which has been marked for disposal by cosmetics group L’Oréal). And the lead story in the FT market report was that Ocado hit an eight-month low on Friday, after a bearish note from UBS predicted that the Online grocer would struggle to fill its new warehouse space.
• Sunday Press: Tesco was in the spotlight in the Sunday papers, ahead of its results on Wednesday, with the Sunday Telegraph flagging that Peterborough is due to become the unlikely battleground for Tesco’s takeover of Booker as the competition watchdog, the CMA, decides whether the deal will hand the pair too much power over the grocery industry . And the odd headline of the Mail on Sunday feature was “Tesco rocked by a bullying scandal now acts to calm new fears over £3.7bn takeover”, whilst the Sunday Times noted that “Tesco profit rise to help case for buying Booker”. The Sunday Times also flagged that Sports Direct boss Mike Ashley has lost the latest round in a legal fight with former adviser Jeff Blue (who claims he is owed £14m from a deal sealed in a London pub), whilst its “Inside the City” column thundered that “JD Sports needs to keep its trainers on the ground”, ahead of
• Today’s Press and News: The bold front page headline of CityAM today (“More pain on the way for UK retail”) is based on the view that “A triple-blow of tax hikes, rising costs and a squeeze on consumer spending” is threatening to force a string of familiar High Street names into administration this year. However, the Telegraph flags that retailers hope for an Easter bounce after six months of falling sales, whilst the Times highlights that Dave Lewis, the Tesco boss, will attempt to keep the controversial takeover of Booker alive with a set of results on Wednesday that show that the business is in full recovery mode.
• News Flow This Week: Things are quite busy this week, running up to the long Easter weekend, with tomorrow bringing the BRC-KPMG Retail Sales for March and the JD Sports finals, whilst on Wednesday we get the Tesco finals, the WH Smith interims and the Dunelm Q3 update.