Langton Capital – 2017-05-22 – RBG & over-supply, longer term trends & other:
RBG & over-supply, longer term trends & other:
A DAY IN THE LIFE:
The Internet has left a lot of victims in its wake, not least amongst them print journalism because first many newspapers decided that they had to go free and then they went online.
And they pushed advertising hard, allowed popups, pop-unders and all the rest and helped to sponsor the growth of the ad-blocking industry such that, now, many sites identify that you are using an ad-blocker and then plead with you to turn it off in order that you might accidentally click through on one of their ads and earn them a few coppers.
But, having caved in and disabled my adblocker for a while last week, I don’t think I’ll be hurrying to do it again as the blizzard of ads pretty much crashed my laptop and filled it with junk that took me quite a while to get off.
Anyway, it looks as though Hull City only had a 37-match season in 2016/17. Certainly, the team didn’t turn up on the pitch to play football yesterday. On to the news:
PUB, RESTAURANT & DRINK PRODUCERS:
• Revolution Bar Group shares fell by 40% on Friday after the group said that costs were rising and new unit sales were disappointing. The warning, which began by saying that ‘the underlying sales performance of the business has remained positive in the second half with like for like sales continuing to grow by 1.7% for the year to date and gross margins remaining as expected’ went on to outline problems with costs and more-slowly-maturing new units.
• Revolution. The latter point above led shareholders to question whether the roll-out model that the group has been pursuing has legs.
• Revolution warning reawakens spectre of oversupply. See our Nov 2016 note, which now looks rather timely – here
• RBG in takeover speculation. Press suggestions made that the group could be a takeover target for Stonegate, the owner of the Yates’s and Slug & Lettuce chains. The Times quotes Revolution CEO Mark McQuater as saying that the share price drop was ‘a bit of an overreaction’. He added ‘it doesn’t reflect the core strength of this business.’
• Leon has raised £25m in investments from Spice in order to expand its UK and US operations. The healthy eating brand will begin this expansion in the 2nd half of this year.
• Bars and wine bars have seen the largest growth of any food and beverage sub-sector in retail centres. New unit openings have increased 14% (359 sites) in 2017. The Cushman & Wakefield UK Food & Beverage Market report also found that the number of pubs at centres decreased by 3%.
• None of Marston’s licensees have opted for the market-rent-only (MRO) option and gone free of tie since the pubs code came into effect in July 2016. Only six of their licensees have requested an MRO offer and none these have accepted.
• Ei group announced that it expects to lose 18% in net income from each of the four sites that have take up their MRO option.
• The UK Trade Policy Observatory reports that post Brexit wine prices are expected to rise by as much as 22%.
• Ei Managed Operations’ Craft Union Pub Company has begun its nationwide expansion with the addition of several sites across the country, taking its current estate to 122 pubs. The chain is also trialling a new food offer focusing on simple, quality dishes such as burgers and pizzas to complement the TV sports-viewing occasion.
• The value of California wine shipments to the US market came to $34.1bn in 2016, marking a 4.6% increase year-on-year and setting a record for the state. The Wine Institute reports that volume of shipments also increased by 2%, shipping an all-time high of 238 million cases to the US. Overall, California wines in the US market have increased from 191 million cases shipped in 2006 to 238 million cases in 2016.
• Casual Dining Group has won a competitive tender process to run two pubs formerly operated by Geronimo Inns at Heathrow Airport. The operator of Bella Italia, Café Rouge and Las Iguanas has assumed management control of two existing pubs, located at Terminals 3 and 5, and will convert them to a new concept – Ale & Coffee House.
• Just Eat’s proposed £200m takeover of rival food delivery service Hungryhouse has been referred for an in-depth investigation by the Competition and Markets Authority. The probe will run until November this year.
• Per MCA, Abokado plans to open 4 new sites in London during 2017. The King’s Park Capital funded chain aims to drive growth through delivery whilst mitigating cost pressures from exchange rate fluctuation, as currently 80% of food inputs are bought in from abroad.
• A study by the National Restaurant Association indicates that some 76% of consumers are open to trying new dishes, with 20% adding that they ‘really enjoy trying new dishes’.
• McColl’s CEO Jonathan Miller has told the Daily Telegraph that his company could be interested in taking over Tesco’s One Stop chain if the latter is obliged to make disposals post its proposed Booker takeover.
TRENDS AND WHATNOT:
• Get the macro right and the micro will follow. Operate in a growing market & many sins will be forgiven. A bad company will defeat a good manager etc. etc.
• Overall, and while we accept that you can rent-a-quote to support any opinion, the above would suggest to us that ‘getting the themes right’ is critically important.
• I mean if you’d focused on vertical, male-led drinking over the last four decades, you may have succeeded but you would have certainly seen your market shrink.
• Indeed, if you look around the room and can’t see the competitor most likely to go bust, then you may be that competitor.
• With bigger themes in mind, Langton produces periodic pieces some of which are linked below:
o Apps; can you ignore them? Here
o Bricks or clicks? Here
o Focus on revenue or margins? Here
o Inflation, friend or foe? Here
HOLIDAYS, LEISURE TRAVEL & HOTEL
• Calls to ban junk food from public transport.
• Center Parcs to open two holiday villages in China. Group says the potential for growth in China is “huge” adding ‘we can bring the people a natural environment they have forgotten because they live in the city. This is exactly what happened in Europe 20 years ago.’
• Accor’s board has agreed to separate its property arm HotelInvest, approving a proposal originally made in July last year that will see Europe’s largest hotel operator create a dedicated subsidiary for Hotelinvest to allow third-parties to invest in the structure. Accor has been making acquisitions to reach and retain new guests as it responds to pressure from online rivals such as Airbnb that are reshaping the hotel market. The group’s recent Q1 results showed early signs that its home market of France is beginning to recover after a tough period due to terrorism and heightened competition.
• Deloitte’s global leader for travel and aviation Graham Pickett believes that the recent upsurge in holiday sickness claims is ‘clearly fraud’. Speaking at the annual Barclays Travel Forum in London, Pickett urged industry leaders to do more to combat the soaring number of claims and praised Jet2holidays for hiring private detectives to catch out companies that are encouraging holidaymakers to make claims. Abta recently reported the Balearics has seen a sevenfold increase in sickness claims by UK holidaymakers since 2015.
• The UN’s counter-terrorism committee chief, Jean-Paul, has said it is a matter of ‘when not if’ terrorists use laptops to smuggle bombs onto passenger flights.
• New figures show that 60,000 more pupils were on unauthorised term time holidays in September than the previous year. This has been linked to the high court ruling last May where father Jon Platt successfully challenged Isle of Wight council’s fine for unauthorised absence.
• Director general of European Regions Airlines (ERA) association, Simon McNamara, believes an EU-UK deal on aviation can be reached. He said ‘I’m very confident there will be an agreement’ but warned ‘the posturing has to stop. Airlines need certainty – legal certainty, operational certainty.’
FINANCE & MARKETS:
• Rightmove reports house prices rose by 1.2$ month-on-month in the UK in May.
• Oil up more than a dollar at $53.96
• Sterling up vs US$ at 1.2998
• Pound down vs Euro at 1.1617
• UK 10yr gilt yield up 4bps at 1.10%
• World markets: UK, Europe & US markets higher on Friday. Far East currently up on Monday trading
YESTERDAY’S LATER TWEETS:
• Later tweets: Revolution warning. Suggests new sites not living up to hopes. Major share price drop down to this rather than scale of shortfall
• Revolution also points to costs headwind. Suggests LfL sales (+1.7%) don’t tell all the story. Investors selling in early trade
• MARS shares drop to placing price. Offer good value at these levels. PER << 10x and yield >> 5%. Strategy working, too
RETAIL NEWS WITH NICK BUBB:
• Saturday Press: There were a few snippets about the cautious Moss Bros trading update on Friday in the Saturday papers. The Telegraph grabbed the photo opportunity provided by the news that the jeweller Theo Fennell, the archetypal purveyor of 1980’s bling, has gone into administration and the Times also flagged this news, wrapping it up with the news that the Joy fashion chain has also gone bust. The FT had a big feature on Greggs (“Greggs on a roll as it moves to feed a nation on the go”), whilst the lead Business story in the Daily Mail was a feature on how the problems of the US department stores are being aggravated by the inroads being made into the US fashion market by the Online growth of the likes of Boohoo (“Britain’s Internet upstarts threaten US shopping giants”). Finally, the Guardian went big on a report that Ikea wants to develop more UK suppliers and it also
• Sunday Press: The big focus in the Sunday papers was on Marks & Spencer, ahead of Wednesday’s finals, with the Sunday Times and Mail on Sunday flagging that it will report another disappointing decline in womenswear sales and a decline in full-year profits, although the Sunday Telegraph had a big feature on M&S, highlighting that it went back into its design archive to help create its latest Autumn range (as well test ideas through customer surveys). The Observer mocked one of the results of M&S’s customer research (most consumers are “stuck on autopilot”), but it also mocked the fact that new M&S Clothing boss Jill McDonald will still have to present the Halfords final results on Thursday this week and that Pets at Home will have to respond to recent City criticism when it reports its finals on the same day (“How much is that dog in the window? The one with the
• Today’s Press and News: Ahead of this morning’s McColl’s/IGD presentation to the City on the outlook for Convenience Store market, the Telegraph has a feature interview with McColl’s CEO Jonathan Miller in which he says, fresh from the integration of the Co-op convenience store chain, that he would be very interested in buying Tesco’s One Stop chain. The Guardian has a preview of the expected weak Marks & Spencer clothing sales and final results to be announced on Wednesday and the Telegraph has a handy “SWOT” analysis of Halfords, ahead of Thursday’s finals. The Times follows up on the weekend press story that the private equity fund Terra Firma has been forced to prop up ist holding in Wyevale Garden Centres and the FT flags that Debenhams is likely to be demoted from the FTSE 250 index in the upcoming FTSE Index quarterly review (with Intu Properties likely to lose its place
• News Flow This Week: A very busy week kicks off with McColl’s presentation to the City this morning on the outlook for the Convenience Store market (helped by the IGD) and continues tomorrow with the Topps Tiles interims. Then Wednesday brings the Kingfisher Q1, the Dixons Carphone Q1, the Marks & Spencer finals and the French Connection AGM. And on Thursday we get the Halfords finals, the Pets at Home finals, the Inchcape Q1, a Card Factory update and the B&M finals.