Langton Capital – 2017-08-08 – Intercon, Paddy Power, craft beer, consumer squeeze etc.:
Intercon, Paddy Power, craft beer, consumer squeeze etc.:
A DAY IN THE LIFE:
Bit busy this morning so straight on to the news:
PUB, RESTAURANT & DRINK PRODUCERS:
• Pragma Consulting has suggested that the number of high-profile US leisure & other retailers ‘announcing significant store closures and seeking bankruptcy protection is growing at record rates.’ It points to Teavana and a number of other restaurant operators as recent indicators. It could be that perhaps the industry has expanded a little too quickly (or has moved in the wrong direction) in recent years. Journal NRN and others have highlighted the fall in footfall as a major reason for declining LfL sales over the last 18mths.
• Pragma says ‘the perpetual roll-out of malls and shopping centres resulted in a significant oversupply of commercial real estate.’ Pragma is commenting on the US but there may be similar forces at play in the UK.
• Wage costs rising. The Recruitment and Employment Confederation has said that hiring is running at its fastest pace in 4yrs. The REC says that this is pushing up wages. It says ‘it’s clear that employers are having to work even harder to fill jobs as vacancies rise and candidate availability shrinks. The parts of the economy most reliant on European workers are under even more pressure as many EU workers return home. Employers are not just struggling to hire the brightest and the best but also people to fill roles such as chefs, drivers and warehouse workers.’
• The BRC has suggested that UK households are cutting back on non-essentials in order to maintain spending on food. Overall spending may look reasonable at +1.4% but the mix is reported to be changing. Restaurant spending is holding up relatively well. Car sales, not so much and fewer people are moving house.
• SIBA has highlighted research that suggests drinkers would like to see more transparency on craft beer ownership. Large brewers have recently got in on the act either by purchasing smaller rivals or by manufacturing their own ‘craft’ product.
• Suntory shares fell by 8% yesterday as the co reported a fall in operating profit in Q2 on the back of weakness in some Asian markets.
• Research conducted by YouGov has found that the majority of beer drinkers (60%) want greater clarity over who is brewing the beer they drink, following the rise in craft beer popularity.
• On the eve of the Great British Beer festival, Chief Executive of the BBPA, Brigid Simmonds has welcomed CAMRA’s request for business rate relief for pubs, stating ‘This is something we called for in the BBPA manifesto for the General Election, so it is hugely welcome that CAMRA, which represents over 180,000 consumers, is also backing £5,000 in pub-specific rate relief. CAMRA is right to highlight that pubs are very unfairly disadvantaged by the current rates system’.
• The five strong barbecue and burger chain, Chicago Rib Shack, entered into administration last month, reports the MCA.
• Potbelly Corp. has hired JP Morgan as a financial advisor as the group looks at addressing its negative traffic trend. CFO for the group and acting interim CEO, Michael Coyne, stated ‘While we expect 2017 to be a tough year due to the macro operating environment, we’re very focused on strategies to mitigate the headwinds and improve traffic trends’. LfL sales declined 4.9% in Q2 ended June 25.
• Certain regions of Italy are expected to see grape yields fall by up to 30%, due to ‘bizarre’ weather this year. This year has seen a dry and mild winter prompting early vine shoots, which then suffered late frost damage, followed by ‘persistent drought and localised hailstorms’.
• Moderate alcohol consumption has been shown to reduce the risk of falls in elderly people, according to Osteoporosis International. The study found that when males drank 40 grams and females 24 grams of alcohol per day, individuals were 20% less likely to suffer a fall.
HOLIDAYS, LEISURE TRAVEL & HOTEL:
• Intercontinental Hotel Group reports H1 numbers, revenues +2% at $857m with adjusted EPS +27% at 113.3c. H1 dividend +10% at 33c.
• Intercon CEO Keith Barr reports ‘we have had a good first half. RevPAR growth of 2.1% and net system size growth of 3.7% delivered a 7% increase in underlying operating profit and a 27% increase in underlying EPS, underpinning the Board’s decision to increase the interim dividend by 10%.’
• Intercon says ‘we continue to make good progress in executing our well-established strategy to deliver high quality sustainable growth, and during the half we passed the landmark of over 1 million open or pipeline rooms.’ Mr Barr says ‘we will continue to focus on enhancing our cost efficiency to generate funds for reinvestment.’ He concludes ‘while we will always face macro-economic and geopolitical uncertainties, we remain confident in the outlook for 2017.’
• Intercon says it has seen ‘solid revenue growth driven by both RevPAR and rooms.’ In Europe, the group has increased REVPAR by 6.2% with REVPAR in the UK up by 6.7%. London was +9% whilst the provinces were +5.4%.
• Marriott reports Q2 numbers, says EPS rose by 13% to 108c. Marriott says ‘worldwide comparable systemwide constant dollar RevPAR rose 2.2 percent in the 2017 second quarter, while North American comparable systemwide constant dollar RevPAR rose 0.9 percent.’
• Marriott CEO Arne M. Sorenson says ‘we posted solid performance in the second quarter of 2017 Worldwide comparable systemwide constant dollar RevPAR increased more than 2 percent with particularly strong transient demand in the Europe and Asia Pacific regions. Strong RevPAR in London, Shanghai and Barcelona reflected surging demand for those markets. In North America, systemwide occupancy exceeded 78 percent and Hawaii, Orlando, Toronto and Montreal reported robust RevPAR gains.’
• Trailfinder, the high street travel agent, has attributed its £12m fall in profits to the fall in the pound following Brexit. The group increased revenue for the year to £728.16m (from £682.41m), but costs of sales rose to £628.59m from £589.56m. The group stated that the year’s ‘unusual event depressed this year’s profit by some £12m but it is expected to recover in 2017/18’.
• Kayak, the online travel agent, has acquired the Brazil based metasearch company, Mundi.
• A joint venture between Alibaba group and Marriott International will enable the hotel group to reach the more than 500m customers of the online retail giant. The JV will ‘redefine the travel experience for the hundreds of millions of Chinese consumers traveling abroad and domestically every year’, with Alibaba working as a gateway to the Chinese market.
• The heatwave names Lucifer has seen temperatures in southern Europe rise to their highest levels since 2003. There are currently hot weather warnings in place in 31 of Spain’s 50 provinces. Cordoba hit 43 degrees over the weekend. The Red Cross has warned holidaymakers ‘this prolonged period of extremely hot weather is particularly dangerous for people with existing health problems such heart conditions, high blood pressure and asthma, as well as older people and children.’
• Britons have cut back on two week holidays in favour of more frequent but shorter holiday trips reports the ONS. The Office for National Statistics reports that there has been a 68% rise in the number of foreign holidays UK residents taken over the last 20yrs but says that the 2016 number of holidays was still down by around 1% on the peak, 45.5m holidays, which was hit in 2008.
• Paddy Power Betfair reports H1 numbers saying that revenues are +9% at £827m whilst EBITDA is +21% at £220m.
• PPB operating profits are +22% at £180m whilst EPS is 181.1p (up 23%). The group says revenue growth has been ‘driven by good stakes growth (Online up 10%, or 15% excluding Euro 2016, and Australia up 16%6) and foreign exchange, partially offset by increased investment in pricing and promotions’.
• PPB CEO Breon Corcoran says ‘we continue to make substantial investments to position Paddy Power Betfair as a structural winner in a dynamic and highly competitive market. The focus of this investment is to use technology to improve efficiency and minimise the cost of servicing our customers and to further enhance our customer proposition.’ He says ‘operating efficiency and the annualisation of merger-related cost savings resulted in strong operating leverage in the period, with operating profit up 22%.’
• Paddy Power Betfair shares fell around 4.5% yesterday on the announcement that 46yr old CEO Breon Corcoran was to stand down. The FT quotes Mr Corcoran as saying ‘it’s a personal thing more than a professional comment on the state of the business, which I still think has great prospects.’
• Gaming Realms has announced that it has conditionally raised £1.1m gross through a subscription of 10.3m new ordinary shares at a price of 11 pence per Subscription Share
• CD sales along with games’ sales (in physical format) have continued to slide. Amazon remains the largest physical entertainment retailer with a 20.6% market share
FINANCE & MARKETS:
• Reuters has repeated claims made by the Sunday Telegraph that UK politicians are prepared to pay around €40bn in order to leave the EU. The bill, amounting to £1,300 per household, would be paid by either increased borrowings, reduced welfare & other spending or higher taxes. A one off poll tax is not likely to be popular. The Sunday Telegraph quotes a ‘senior Whitehall source’ as saying ‘we know (the EU’s) position is 60 billion euros, but the actual bottom line is 50 billion euros. Ours is closer to 30 billion euros but the actual landing zone is 40 billion euros, even if the public and politicians are not all there yet.’
• Halifax reports UK house prices fell by 0.2% in the 3mths to end-July. Halifax says the ‘improvement in the jobs market has not, as yet, boosted wage growth, resulting in earnings rising at a slower rate than consumer prices. This squeeze on spending power, together with the impact on property transactions of the stamp duty changes in 2016 now being realised, along with affordability concerns, appear to have contributed to weaker housing demand.’
• Oil price down marginally at $52.15
• Sterling little changed at $1.3049
• Pound down a fraction vs Euro at €1.1045. Tourist rate as low as €1.005.
• World markets: UK & US up yesterday but Europe lower & Far East mostly down in Tuesday trade.