Langton Capital – 2017-06-22 – More on WTB, Diageo, Carluccio, Saga & other:
More on WTB, Diageo, Carluccio, Saga & other:
A DAY IN THE LIFE:
So, I’ve noticed that many people have the knack of swirling on their jackets in one fluid move, a skill that leaves me looking a bit cack-handed handed as I put in first one arm and then the other, a move that probably costs me perhaps two, perhaps three seconds, four or five times a day but which, over the years, has saved me from dislocating either of my shoulders and from occasionally sweeping a table-top full of glasses onto the floor.
Meaning that, on balance, I prefer to win back these 12 or 15 seconds by not looking in the mirror much, indeed, at all unless I’m getting a shave, an inaction that has the added benefit of improving my mental health or at least not severely depressing me as my jowls become more prominent and my hair drops out.
So, there you are.
No £1,000 leather pants for me. Thankfully, you may add and no Tuesday shoes, no Wednesday shoes, no Thursday shoes and no chain jewellery that looks as though it would be more at home on the Hull docks but at least I can get on with the job and, though I’m prone to the odd wobble, I’m relatively strong and stable. On to the news:
WHITBREAD Q1 ANALYSTS’ CONFERENCE CALL:
Following its Q1 update, Whitbread hosted a conference call for analysts and our comments are set out below:
Trading – General:
• Good start to the year. No change to guidance.
Premier Inn & Restaurants: :
• Visibility for the summer? Cancellations? The beginning of the year has been ‘buoyant’. The group is not changing its guidance.
• Terrorism? There was a dip. There has been a bounce-back. it’s ‘too early to call in total’.
• Business holds up better.
• New extensions have impacted REVPAR by around 1.5%. The group ‘looks more closely at its total sales’.
• Group continues to evolve its booking engine.
• Lower OTA mix? This is a little lower. All part of the mix. Group aims to ‘solidly build its core customer base’. Group is ‘constraining’ OTA inventory. Want to build the brand. Slightly reduces exposure to (currently buoyant) inbound tourist market.
• Midweek versus weekend? This has been a ‘balanced performance’. Business confidence has held up better than consumer confidence. Sterling has worked positively for leisure business.
• Superior performance over the middle-market has narrowed.
• Occupancy is 79.2% vs 79.1% last year. Will it go to the low-80s? There is scope for further expansion. London is 85-87%.
• Hub is ‘performing well’. Returns should be as expected. Customer reaction has been as good or better than hoped.
• Roll-out. Done 1,000 rooms in Q1. Will it be less back-end loaded? Yes, but this smoothing has taken time.
• Costa is tracking ‘exactly as planned’. No change to guidance.
• LfLs by channel? High St weak? Yes, the High St is still more challenging. It’s flat rather than down. Travel & drive through are good.
• Food? Breakfast launched in May. Bacon rolls were ‘heavily discounted’. This did drive volume but data is still coming in
• Summer drinks have only just gone live. No data.
• International. Good in Poland, China better. Middle-East more challenging.
• Was most LfL growth price led? Yes.
• Annualising price rises? What impact on LfLs? Price rise went in in first week of Feb. It will lead to around 1% LfL positive. There has been no adverse customer reaction.
• Competitor reaction? Costa has remained VFM. Coffee market is still growing. Starbucks has mentioned softening in profitability in the UK. McDonald’s is advertising its coffee strongly. An anti-artisan move
Langton Comment: Whitbread has confirmed that its current year has begun well. The group is not changing guidance.
Terrorist incidents have impacted trade but ‘there has been a bounce-back’.
The High St (Costa) is flat rather than down.
Prices at Costa rose in February & this will help LfL sales.
All of the above said, there are no changes to guidance and, trading at around 15.5x this year’s EPS, Whitbread’s shares offer good value against their own recent valuations if not against some peers.
PUB, RESTAURANT & DRINK PRODUCERS:
• Diageo has entered into a definitive agreement to buy US super-premium tequila brand Casamigos in a deal that values the brand at up to $1bn with an initial consideration of $700m and a further $300m based on a performance linked earn-out over 10 years. Casamigos was created in 2013 by founders Rande Gerber, George Clooney and Mike Meldman. Deirdre Mahlan, President Diageo North America, commented: ‘I am excited by the opportunity to bring Casamigos into the Diageo portfolio which allows us to further penetrate this exciting and high growth category. We believe Casamigos will play a complementary role alongside Tequila Don Julio. We look forward to partnering with Rande, George and Mike to realise the full potential of the brand.’
• Both of Carluccio’s US restaurants have been closed after reviews of their performance. A spokesperson for the group said ‘While trading was encouraging, the competitive nature of the U.S. market meant margins were lower than anticipated and lower than other markets’.
• The BBPA Chief Executive, Brigid Simmonds, has commented following the Queen’s Speech ‘As the Brexit bills proceed, we will certainly be making clear our priorities; robust transitional arrangements, trading as freely as possible with frictionless customs arrangements, and future access to the skills we need with the rights of our existing employees swiftly safeguarded’.
• Kate Nicholls, the Chief Executive of the ALMR, remarked on the Queen’s speech ‘today’s speech rightly focused on Brexit but it is nevertheless disappointing that there was no specific announcement on business rates reform which we called on as a first day priority for the new government.’.
• Food & Drink Federation says re Queen’s Speech ‘we are ready to seize new opportunities, but our trading and regulatory ties with the EU are deeply interwoven and must be dismantled with care. We cannot afford any ‘cliff edge’ scenario.’
• FDF says ‘maintaining frictionless movements of goods between the UK and EU will be essential for our industry. 70% of food and non-alcoholic drink exports and imports are with the EU.’
• FDF says ‘business must be able to attract the brightest and best global talent.’ This in addition to strawberry pickers.
• BBC says some fruit & salad growers are having trouble finding labour to get their product in from the fields. Around 80k mainly Romanian & Bulgarian workers have helped with the harvest in recent years. The UK presumably coped for hundreds of years previously but BBC quotes trade body British Summer Fruits as saying the labour shortages are now the worst seen since 2004. Prices could edge up as a result.
• Franco Manca is set to further roll out in the regions with openings lined up in Bristol and Oxford, the MCA has reported. The Fulham Shore-owned 38 strong chain opened in Bournemouth and Reading earlier this year.
• Meal-delivery startup Freshly has raised $77m from Nestlé and others to support its expansion across the US, meaning the group has raised $107m since launching in 2015.
• Starbucks has announced it will hire 2,500 refugees by 2022, across eight European countries, including the UK, France, Austria and Spain.
• The Boparan-owned restaurant chain, Giraffe, have seen LfL sales in their remodelled sites increase by 13%, reports the MCA. Marketing director of Boparan, Alex Meyer, commented ‘repositioning Giraffe as a world kitchen has given us a clear purpose that resonates with both existing diners and a new audience of young professionals’.
• A panel of industry leaders emphasised at the MCA Managed Pub Conference, the importance of recruiting more people from UK, as Brexit talks threaten to limit immigration. Brigid Simmonds, Chief Executive of the BBPA said ‘We all have to play our part in recruiting people in the UK, from going to colleges, creating more apprenticeships, we need to do our part’.
• Heineken has become the first drinks company to sign up to Amazon Dash to provide ‘beer at the touch of a button’, meaning other players might be forced to follow suit. Amazon’s Dash buttons were launched in the US in 2015 to allow consumers to reorder a selection of well-known household brands at the touch of a wifi-connected button situated around the house, without going online. Other products participating in the new technology include Nescafé, Ariel, Kleenex, Gillette and Rimmel. Rival brand Carling also recently launched its own ‘beer button’ last September that synced directly to the top five UK’s retailer’s online grocery site.
• Up to 1,100 jobs are set to go at a Tesco call centre in Cardiff as it consolidates its customer engagement centres (CEC) into a single site in Dundee, Scotland, where 250 jobs would be created. The supermarket giant said it needs to ensure its business is ‘sustainable and cost effective’ and is consequently closing the call centre in February 2018.
• NPD data shows US consumers prefer getting fast food from quick-service restaurants rather going to full-service concepts recently. The results help explain long-term trends toward quick-service and fast-casual chains that have been more specialized and offer higher quality items.
• With only 7% of US consumers shopping online for groceries online in the last month, The NPD Group reckons that grocery e-commerce has a lot of headroom for growth. Amazon’s recent purchase of Whole Foods could help drive any shift to online.
HOLIDAYS, LEISURE TRAVEL & HOTEL:
• Saga updates on trading saying ‘the Group’s core insurance and travel businesses have continued their good start to the year with the backdrop of a changing political and economic environment.’ The group says ‘Saga remains well positioned to deliver against the strategic objectives set out at its capital markets event on 29 March 2017.’ CEO Lance Batchelor comments ‘we have made a good start to the year across our core trading divisions. We remain on track to deliver on our strategic objectives, including the launch of our membership scheme, Saga Possibilities, which will go live later this year.’
• Abta has issued a call to arms to holidaymakers to report holiday sickness claims firms touting for business this summer as it steps up its lobbying of government. Mark Tanzer, Abta chief executive, said: ‘The public need to know the truth behind the highly misleading marketing tactics used by unscrupulous claims management companies whose activities are causing so much damage.’
• Mounting pressure from shareholders has resulted in Uber boss Travis Kalanick resigning from his post. Mr. Kalanick had come under scrutiny after the firm suffer from scandals including complaints of sexual harassment. Mr. Kalanick said ‘I love Uber more than anything in the world and at this difficult moment in my personal life I have accepted the investors’ request to step aside so that Uber can go back to building rather than be distracted with another fight’.
• Uber has no immediate replacement for Travis Kalanick, who has been ousted from Uber, the company he helped found and grow to a $62.5bn valuation. Most of Uber’s most senior leaders have left in recent months, leaving it without a chief financial officer, chief operating officer, general counsel, or head of engineering — and now without a chief executive as well. Some investors have voiced concern now that the tech company has ‘lost its entire C-suite’, while others have called Kalanick’s departure ‘a trial by public opinion’.
• Scandic Hotels Groups have agreed to buy the 43 property strong Finnish hotel group Restel, for €114.5m.
• Driverless car trials on public roads have been planned following a demonstration of what they can do in Nuneaton.
• The US motorcycle manufacturer, Harley-Davidson, is reported to be lining up a takeover bid for its Italian rival Ducati, that would bring the group’s value to £1.3bn. The Indian motorcycle maker Bajaj Auto are reportedly interested in making a rival offer for Ducati.
• Jackpotjoy reports that it has made the final earn-out payment for the non-Spanish assets within the Jackpotjoy division. It says ‘this final payment amounted to £94.2m and has been comfortably met by existing cash resources.’ CEO Andrew McIver comments ‘today’s final payment of the earn-out on the non-Spanish brands of the Jackpotjoy division is another important milestone for the Jackpotjoy group, following our move to the London Stock Exchange earlier this year.’ Re trading, he says ‘the 14% growth in revenue which the Jackpotjoy division delivered during Q1 highlights the sustained momentum in growth.’
• Hollywood Bowl Group has invested £300k in a refurbishment of its Wolverhampton unit. The CEO of Hollywood Bowl Group, Steve Burns, stated ‘We’re very excited to have unveiled our new-look centre in Bentley Bridge. It’s our seventh major investment this year, which has also included new builds at Derby and Southampton, and our ongoing Bowlplex rebrand programme’.
FINANCE & MARKETS:
• Bank’s Andy Haldane opens second front re interest rate rises saying he may vote for a rate rise in H2 this year. The Bank most recently cut interest rates by 0.25% in August last year.
• A Haldane defection would tie the MPC at 4:4. Governor Mark Carney has said that he does not believe an interest rate rise in the short term is a good idea.
• Sterling & short term interest rates rose on the back of Andy Haldane’s comments. Pound up vs US$ at $1.2672. Sterling actually down a fraction vs Euro at €1.1344. UK 10yr gilt yield up 4bps at 1.04%
• Bank of England agents say ‘moderate underlying growth in activity had continued overall. Annual sales growth in volume terms had continued to slow. Export volume growth had continued to increase, supported by the lower sterling exchange rate and stronger world growth.’
• UK budget deficit narrowed in May to £6.7bn, down from around £7bn in May last year. Chancellor Philip Hammond commented people are “weary after seven years of hard slog repairing the damage of the great recession” but says that much remains to be done in fixing the structural overspending that remains.
• Oil down another dollar at $44.81
• World markets: UK, Europe & US down yesterday but Asia mostly higher in Thursday trading
o Queen’s Speech sees many Manifesto promises dropped as HMG focuses on delivering Brexit (per FT). Plenty of documents arriving at the pulpers right about now. No Grammar Schools, no social care changes etc.
o Ms May promises consensus but, after previous strident comments, not clear that she is the person to deliver the above
o Lib Lab pact possible (Telegraph)
o No DUP deal yet. Mrs May still PM (as at time of writing).
o Danger of Hard Left government as Tories now ‘own’ Brexit & all that goes with it. Labour 6pps ahead in polls
o Debacle deniers says this is where we always wanted to be. Despite strong & stable, strengthen my hand comments etc.
YESTERDAY’S LATER TWEETS:
• Later tweets: John Lewis says electric fan sales +1,000%. With the heatwave breaking overnight, there might be a number of returns next week!
• Whitbread Q1 update fine. Co says year started well but no upgrades. Shares react with apparent relief, up 4.5% at time of writing
• Queen’s Speech in an hour. No DUP agreement. Could Tories limp to a defeat in vote next week? Not likely but not impossible.
• Billionaire octogenarian genius Soros ‘Brexit is a lose-lose proposition’. Says public waking up to the problem. Could blame Tories.
• UK moves from fastest growing G7 nation to slowest post Brexit vote. Public looking for someone to blame. Debacle opens door to Hard Left
• Tories late to register fact that The Crazies have grabbed the wheel. Labour 6pps clear in polls. Brexit debacle. You couldn’t make it up
RETAIL NEWS WITH NICK BUBB:
• Midsummer Watch: By tradition, the UK property agents Colliers always launch their long-running Midsummer Retail Property Report…on Midsummer’s Day, ie yesterday, and this year it was entitled “Survival of the Fittest”. The main message was that UK retailers are becoming concentrated in fewer, “prime” locations, as Online shopping saps demand for premises, with cooling interest from bars and restaurants. Rents for the top tier of retail property rose 1.8% in the year to April, the biggest increase since 2008. But it also found that for the first time since 2012, the percentage of the country’s top 420 shopping areas where rents are falling increased, from 5% to 12%. The definition of “prime” was big regional shopping centres such as Cribbs Causeway in Bristol and Meadowhall in Sheffield, as well as “cathedral cities and really strong market towns”, such as Chichester, Winchester and
• Today’s Press and News: The big Retail news is that Tesco is to close its Cardiff call centre, with a loss of up to 1100 jobs and that gets prime billing in the FT, inter alia. City AM picks up the prediction from the Colliers Midsummer Retail Report (see above) that London’s retail rents are set to cool despite a superb shopping scene and the revelation that up to 25 shop units on Bond Street are being quietly marketed. City AM also flags the Sky News story that Superdrug owner AS Watson (the Hong Kong based company) is mulling a £1bn takeover bid for Holland & Barrett. The Guardian makes a big deal of the “upheaval for Burberry”, as the Chairman John Peace has signalled that the end of 2018 is his departure date. The lead story in the FT stockmarket report is that investors in ASOS were spooked yesterday by the launch of Amazon’s Prime Wardrobe (which gives members free
• News Flow This Week: The Halfords Annual Report has been published today, which could prompt some revelations about Director bonuses etc etc. After the prestigious BRC Annual Lecture (from the turnaround specialist Richard Pennycook) in the City this evening, tomorrow brings the Boohoo.com AGM in sunny Manchester.