Langton Capital – 2017-07-18 – Spirits (liquid & mental), new entrants, Airbnb & other:
Spirits (liquid & mental), new entrants, Airbnb & other:
A DAY IN THE LIFE:
John Maynard Keynes famously said that stock selection, like a beauty parade, was more about analysing what other investors thought other investors thought other investors thought than it was about the stocks themselves.
This can lead us into an infinite loop but, though his concept of infinity is hazy at best, our dog seems to have cottoned onto the idea of iterating something because he’s now inventing phantom postmen so that he can rush outside and bark so that we’ll have to offer him a tasty titbit in order to persuade him to come back inside.
And the look of smug satisfaction on his face has to be seen to be believed. He’s stuck it to The Man. He’s been fed for doing nothing and boy, is he happy. Would that life were that simple. On to the news:
PUB, RESTAURANT & DRINK PRODUCERS:
Rumble in the Jungle. Consumer sentiment (still) on the slide.
• Deloitte has reported that UK consumer confidence has fallen for the third straight quarter. Confidence across 3,000 respondents is running at minus 10%, down from minus 7% last quarter. Consumers are worried about their incomes. Deloitte reports ‘a squeeze in living standards has dented consumers’ spirits. With inflation rising to 2.9% in June, its highest level in four years, and earnings growth around the 2% mark, consumer spending power is shrinking for the first time in three years.’
• UK CPI numbers for June are due out later this morning.
• On a brighter note, Deloitte says ‘unemployment is at a 40 year low, the employment rate has never been higher and interest rates – and debt funding costs – are at rock bottom levels.’ However, it says concerns about ‘job opportunities, career progression and job security are higher than they were a year ago.’
New entrants & new build leads to more capacity. Property (and labour) costs rising but economy slowing, consumer confidence slipping & footfall under pressure:
o We built it & they did not come say some operators. A bemused grin and a shrug will not be sufficient to pay the rent.
o Pre-revenue business plans are OK. Trading at an EBITDA loss is also permissible if there is light at the end of the trading tunnel.
o Roll-outs may fit the bill. Caffe Nero, Costa & Domino’s Pizza in the UK are cases in point. In their own way, they were disruptive.
o DP Poland (which increased its store numbers from 35 to 44 in the 3mths to 5 April and which updates on Q2 tomorrow), make succeed but ‘me-too’ operators may struggle. Particularly if occupancy costs are high.
• Recent William Grant & Sons report has suggested that 55% of the growth in alcoholic drink sales in the on-trade were down to spirits. It reports that the spirits market is worth some £6bn. Vodka takes 29% of the on-trade with gin at a shade under 12%.
• Stonegate Pub Co raked in half a million pounds by opening up early to show the British and Irish Lions tour, the group’s chief executive Simon Longbottom told the MCA. Mr Longbottom stated ‘There was a rising demand to show the matches as the tour progressed. Customers wanted to be in a great atmosphere watching the British Lions slog it out in New Zealand’.
• A coalition of consumers, pub owners, operators and brewers have written a letter to the Secretary of State for Communities and Local Government Sajid Javid demanding a review and reform of business rates. The letter states that crippling business rates have unfairly and disproportionately punished pubs.
• A report released by professors from the University of Sussex and London’s City University have warned the UK will face ‘severe’ food supply problems post Brexit, if the government doesn’t make urgent plans for food and farming. Professor Millstone said ‘Since the Brexit referendum, UK food and agricultural policy has been in chaos. Not only have ministers yet to develop a strategy or make decisions, they have not even grasped the issues about which urgent decisions are needed’.
• BT Sport has announced it will raise subscription prices for pubs by 3.5% from 1 September 2017, keeping it below RPI rate of inflation (3.7%), the MCA has reported. The group will also delay linking its prices to the new business rates values until next year, as it was ‘aware of the cost pressures pubs were facing’.
HOLIDAYS, LEISURE TRAVEL & HOTEL:
• Thomas Cook has accused a family of lying about being ill on holiday to extort £52,000 from the company, in a landmark court case. Three of the family will be tried as adults and could face between 18 months and six years in prison if found guilty.
• Pragma UK has reported that holiday operators are turning to providing experiences in order to improve margins. The proliferation of price-comparison tools has put pressure on margins for easy to value commodities such as travel and standardised accommodation. Operators therefore have turned to non-comparable experiences to differentiate their products and improve margins.
• The number of nights booked in booked through the Airbnb app increased 130% on last year despite worries over the company’s ‘lack of regulation’. Bookings in London rose to 4.62 million in 2016 from just over two million in 2015. The first four months of 2017 has also seen an additional 55% uplift in the number of nights booked through the app compared to the same period last year.
• Netflix shares climbed more than 10% on the news that the firm has around 104m subscribers, a larger-than-expected number that increased revenue. The company has assigned the growth in sales to its investments into TV and film.
• Mattel, the toymaker of Barbie and other American Girl dolls, has announced that veteran CFO, Kevin Farr, will be leaving the company.
• Twitter has held talks to secure the rights to the US PGA Championship, this comes after Sky lost its exclusivity rights to broadcast the event in the UK.
FINANCE & MARKETS:
o Anti-EU veteran David Davis has said he is keen to “get down to work” as the first full round of negotiations began with the EU yesterday
o Senior German politicians are reported to have said that Britain is a ‘disgrace’ and that its lack of Brexit preparedness is ‘farcical’
o Brexiters believe they have a cunning plan
o Although her authority is much-diminished, PM Theresa May will try today to stem anti-Philip Hammond Cabinet leaks
• UK CPU due out at 9.30am
• Eurozone CPI for June 1.3%, down from 1.4% in May
• Oil price down to $48.42
• Sterling little changed vs US$ at $1.3091
• Pound 70bps lower versus Euro at €1.354
• UK 10yr gilt yield down 3bps at 1.28%
• World markets: UK up with Europe down yesterday. US almost flat with Far East mostly down in Tuesday trading
YESTERDAY’S LATER TWEETS:
• Later Tweets: If they didn’t exist today, would you build them? Restaurant Group, WH Smith? Possibly, but what about BHS, Debenhams, even M&S?
• Pragma: ‘Experiential’ side of holidays is point of differentiation. More margin, less easily comparable & avoid ‘race to bottom’ re price
• Franco Manca is to introduce a 7th pizza. Yes, there have only ever been 6 to date. We can hardly wait.
• Just Eat to introduce Funding Circle to its restaurant suppliers. Just what we need; more debt.
• Tim Martin really is Brexit poster boy. Mugshot to appear on Union Jack posters featuring various ‘elite’ commentators with socks in mouths
• Restaurant Group. Many would-be investors twitching to buy. But it’s a long, long road back. Co reports H1 numbers end-August
• Profits good, losses bad. Profits good, losses bad. Are we missing something? See e/m for comment on London Union, Bounce, We Are Bar etc
• EasyHotel signs master franchises for Iran, Sri Lanka. Not large markets but every little helps.
RETAIL NEWS WITH NICK BUBB:
o H&M Sales Watch: On the back of yesterday’s disappointing H&M sales for June (up by only 7% in local currencies on the previous year), the fashion giant announced that in the future it is to publish the group’s sales per quarter instead of per month. As a sop to its large institutional shareholders, it is to arrange Capital Markets Days “during which more in-depth information about the business will be given”, but H&M’s reasoning is that “a month is far too short a period over which to assess how sales are developing; in fact, a single month’s sales can actually be misleading, since calendar and weather effects – among other things – may significantly affect the outcome. Instead sales development should be viewed over a longer period of time, such as over a season or a quarter. This is also the reason why the majority of companies in fashion retail currently report their
o Wolfson Watch: We are grateful to yesterday Daily Telegraph for pointing out that Next’s highly regarded CEO Simon Wolfson has just awarded his third annual Economics Prize of £250,000. The subject this year was a topic dear to everyone’s heart, Road Congestion and the winner was a recent graduate from UCL, the Hungarian-born Gergely Raccuja…His entry, “Paying for road use could be Miles Better”, went head to head on a final shortlist of five, judged by senior policymakers including the former Chancellor Alistair Darling. Gergely’s entry argued that to restore trust between politicians and motorists, fuel duty and VED should be scrapped and replaced with a simple and fair distance-based charge that also captures road and environmental impacts. The lighter and cleaner your vehicle is, the lower the per mile charge, which would be collected annually by insurance companies.
o News Flow This Week: The big day is Thursday, with the much-awaited Sports Direct finals, the Howden Joinery interims, the Mothercare Q1 update and the ONS Retail Sales for June. On Friday there will be an AGM update from AO World (aka AO.com) and interims from the London property company Capital & Counties (aka CapCo).