Langton Capital – 2017-10-05 – Revolution, weather, confidence, Pepsi, Monarch & other:
Revolution, weather, confidence, Pepsi, Monarch & other:
A DAY IN THE LIFE:
Is Google the best thing since sliced bread or is it an out-of-control monster that is invidiously wheedling its way into our lives and spying on us?
Or is it both?
Well possibly the latter as, when I was talking to a colleague yesterday and used the word ‘okay’, the smart phone in a third party’s pocket butted in with an answer to a question that I had only half asked.
It was perhaps ‘okay, when does the pub open?’ and the person to whom I had addressed the question was beaten to the punch by some AI monster that is now firmly convinced that I’m an alcoholic.
Or more accurately the person in whose pocket the phone was lodged and it’s maybe only a small leap to the position where the person in question gets unsolicited emails or even texts from alcohol out-reach charities, divorce solicitors and kebab shops.
Anyway, we won’t be alone. On to the news:
LANGTON RESEARCH, GET IT WHILE IT’S HOT @ £200 + VAT:
Headings include Why the Increase in Supply, evidence of oversupply, consequences of oversupply with a case study comprising a City of London walk.
It’s an easy (if at times queasy) read & if you’d like a copy at £200 + VAT (in money, beer or pizza subject to negotiation), then please drop us a line.
SEPTEMBER WEATHER IN 60 SECONDS:
Weather: A British obsession?
• Here at Langton we regard it our national duty to speculate on the impact of our variable weather year on year.
Calendar Q3 – stark contrasts:
• In 2016 we experienced a remarkably warm September with a mean temperature across the UK of 14.6°C, up 2.0°C on the average.
• As you can imagine, this was a great time for pubs with beer gardens and day trips to outdoor visitor attractions (Thorpe Park etc)
• However, it was not so good for woolly mittens etc. & had a less pleasant effect on gravy, soup, dessert and other FMCG sales
• Indeed, Premier foods warned on profits due to the hot weather.
Cold this year:
• September 2017 was 12.6°C on average, a whole 2.0°C lower than last year.
• This noticeable drop will materially impact businesses that are sensitive to UK temperatures.
• FMCG companies could be sitting on good news for calendar Q3. For pubs, etc., not so much.
A bit more detail:
• Additionally, if you look at England, where 85% of the UK’s population lives, it was 2.5°C cooler in September this year compared to last.
• This sharper drop, felt by a larger proportion of customers, could yield good results for FMCGs even amidst a slowdown in consumer spending.
DELTIC MERGER PROPOSAL RE REVOLUTION:
• Deltic has put forward a merger proposal re Revolution Bar Group ahead of its 10 October put-up-or-shut-up deadline
• Deltic proposes ‘a combination under which existing Revolution shareholders would own 65% and Ranimul shareholders 35% of the Enlarged Group’
• Deltic says ‘there can be no certainty that an offer or other proposal will be made for Revolution nor as to the terms on which any offer may be made.’
• Deltic says the Enlarged Group would be run by the current Deltic management team. It says it (the Enlarged Group) ‘should benefit from approximately £6.8 million of currently identified pre-tax cost synergies and approximately £0.9 million of pre-tax financing synergies’
• Deltic proposes the Enlarged Group maintain its premium listing on the main market. There would be ‘no change to Revolution’s existing dividend policy’
• Deltic says ‘a transaction can be expedited rapidly and without significant incremental cost’ adding ‘a merger with Deltic offers the opportunity to accelerate Revolution’s strategy set out at the time of its IPO.’ Deltic adds it ‘believes that significant value will be created for existing Revolution shareholders’
F&B SECTOR CONFIDENCE:
• CGA Business Leaders’ survey suggests ‘mounting costs and Brexit dampen market confidence, but new businesses in particular remain optimistic about their own prospects in out-of-home sector.’
• Confidence survey: Says 66% of respondents ‘remain upbeat about prospects for their business, while acknowledging significant challenges in the market.’
• Confidence survey: Some ‘76% of leaders told the survey that their business’ performance had been in line with, or above, expectations so far in 2017.’ The survey finds that leaders are less optimistic about the market as a whole with only 34% saying they were optimistic about prospects for the next 12 months—down from 43% in May.
• Survey: This ‘highlighted widespread concerns about threats to the market including spiralling input costs and Brexit.’
• CGA survey: ‘Businesses are facing something of a perfect storm of challenges.’ It says 81% had been impacted by rising food costs with 70% only able to pass this on to customers. Business rates & staff costs are also a worry.
• CGA survey says ‘falling confidence also reflected uncertainty about Brexit and its subsequent triple impact on consumer confidence, import costs and availability of European workers.’
• CGA says 71% of [business] leaders said the decision to leave the EU had already had a negative impact on their business, and there was widespread alarm that the most severe consequences of Brexit were still to be felt.’ It says ‘the poll flagged up concerns about possible market saturation, as well as the public’s likelihood to continue to go out to eat and drink.’
• CGA concludes ‘before the Brexit referendum confidence in the market was sky high. It plummeted straight after the vote, and although confidence in both leaders’ own businesses and to a lesser extent the general market have recovered, they are not back to early 2016 levels.’ It concludes ‘the worrying aspect is the gap between market and company optimism and the effect this uncertainty might have on decision-making, especially around investment and growth.’
• The ALMR has responded to the poll, saying ‘the drop in employer confidence underlines the need for Government action to reassure businesses and provide stability and clarity. Fears of future Brexit-related impacts appear to be as much of a problem as other legislative and financial burdens already taking their toll.’
• ALMR calls on the Chancellor ‘to reduce wage and property costs’.
PUB, RESTAURANT & DRINK PRODUCERS:
• Caravan has lodged accounts to end-Dec 2016 with Companies’ House showing that the operator, which need only lodge balance sheets, lost in the region of £16k last year. The group has positive shareholders’ funds of £383k.
• Pepsi yesterday missed Q3 forecasts slightly saying that slowing demand for soda was having an impact. Net revenues rose 1.3%. The group’s shares still rose by a little under 1% on the day. CEO Indra Nooyi said the company had perhaps gone too far in pushing low-calorie drinks and it had somewhat neglected its trademark cola. Ms Noovi says ‘this summer, we directed too much of our media spending and shelf space to low-calorie, much smaller brands at the expense of our Pepsi and Mountain Dew trademarks.’
• Big ticket may be feeling the pinch. Topps Tiles yesterday warned on profits. The SMMT comments on September car sales later today
• The MCA reports that Busaba Eathai’s CEO, Jason Myers, is to step down. It is speculated that interim director Terry Harrison will led the group after Myers’ departure.
• Anheuser-Busch InBev has gained a majority holding in Coca-cola Beverages Africa for $3.15bn.
• Japan’s Asahi Group announced a price increase for its bottles and kegs of beers for the first time in a decade, sending the shares up by as much as 5.4% in Tokyo.
• Shake Shake is trialling a kiosk-only ordering model at one of its sites in New York with CEO Randy Garutti saying the firm is taking a major shift towards convenience.
• Hugh Osmond, the backer of Strada and Coppa Club, has told the MCA that many mid-market units will be made unviable due to increases in minimum wages, rates and food costs. Osmond said: ‘The market has certainly softened. Rent reviews in London and the South East are still ridiculous though and, combined with further increases in minimum wage, rates and food costs, will make many mid-market units unviable.’
• PAI Partners has made a takeover offer for Refresco, the offer for the European soft drinks bottler is valued at €1.6bn.
• A report conducted by the Chinese Alcoholic Drinks Association and research company EXACT Data, found that the majority of wines consumed in China are low-end. Over 50% of Chinese wine imports are retailing below 75 RMB (around £8.50).
• NPD has reported US dining out data, finding that the year ended June 2017, saw the number of visits for eating dinner out decline the most since 2013, with 57 visits per capita, down from 62.
• NPD commented that we are living in age where customers can get any type of food they want at a swipe of a button. This means that restaurants need to put forward more compelling offer to entice customers in venue. Laura Rae Dickey, CEO of the 550 site strong Dickey’s, told the NPD: ‘We’re living in an Amazon world. They want it when they want it, how they want it. They are still having [dinner] with groups, families — just not as often in our restaurants, but with our food.’
• The 3557 site strong quick service chain, Sonic Drive-In told NPD that they are resorting to offering customers a plethora of promotions to encourage dinners. Lori Abou Habib, the group’s vice president told NPD: ‘Our dinner daypart is an integral part of our strategy, and we are focusing our promotions on quality, one-of-a-kind offerings at an incredible price.’
• Food & Drink Federation has warned the government must ‘redouble its efforts in order to secure the best possible Brexit deal for the country,’ adding: ‘The clock is ticking ever louder; the food and drink industry, the UK’s largest manufacturing sector, needs a transition period that provides continued access to our valued EU workforce, a stable regulatory regime, frictionless customs and trade, and a practical solution to Irish border issues. It is imperative that we see concrete progress during the next round of negotiations.’
• Walmart has acquired Parcel, a US-based delivery company, as it looks to compete against Amazon.
• Up to 3 million small business in Britain still don’t accept cards despite research showing that 38% of people prefer to use cards and 17% never use cash.
HOLIDAYS, LEISURE TRAVEL & HOTEL:
• The CAA have said the monarch repatriation is ‘progressing well’ after bringing back around 11,000 people back to the UK a day. The CAA will still face the task of bringing back about 87,000 people to the UK over the next 12 days.
• Travel agents are hoping airline slots left empty after Monarch’s collapse will be bought despite some airlines offering exorbitant prices. Niall Douglas of Full Circle Travel said ‘Some operators have been great rebooking and adding no cost where they can… others have been less proactive.’ Owner of Haslemere Travel, Gemma Antrobus, said ‘I’m hoping someone can snap up the routes so we can start getting back to normal pricing… one easyJet booking was in the thousands.’
• Union Unite has launched a legal action in an attempt to win millions of pounds of compensation for its members.
• Japan’s Softbank is set to invest between $1-1.3bn in Uber after being approved by the ride hailing firm’s directors. The Uber board also endorsed a plan to hold an IPO in 2019
• Rail unions have begun a 24-hour walkout with members from Southern, Merseyrail, Arriva Rail North and Greater Anglia on strike. The disagreement is about rail companies saying a train guard is no longer needed to open doors.
FINANCE & MARKETS:
• UK services sector growth in September picked up slightly on the year lows seen in August reports Markit
• UK September services PMI was 53.6 vs 53.2 in August. Any number over 50.0 implies growth.
• Scotland’s economy grew by only 0.1% in Q2 this year reports the ONS. The UK as a whole grew by 0.3%
• Analysts differ on rate rise projections. KPMG economist Yael Selfin says ‘given the weakening outlook for growth it may be wise for the [MPC] to wait until next year before beginning to raise rates, once the future path for UK business becomes clearer.’
o S&P says it is “a bit sceptical” about the need to raise UK interest rates in the near term. It suggests that the Bank of England may be seeking to support Sterling
• FCA says car loans are not dangerous in and of themselves
• Oil up a fraction at $55.82
• Pound down vs dollar at $1.3244
• Sterling weaker vs Euro at €1.1263
• UK 10yr gilt yield up 2bps at 1.38%
• World markets: UK a shade lower, Europe down & US up yesterday. Far East slightly higher in Thursday trade
o Tories labelled shambolic in Times, press highlights incompetence in admitting prankster. And in not being able to stick a few letters to the wall. Nervous Mrs May didn’t help.
o Times: Boris has plenty of ambition but no courage.
o Mrs May labelled a tragic figure. ITV suggests she engenders pity. Channel Four says has been a ‘chronic week for the Tories’
o Times suggests ‘business rounded on the Conservatives after a “let down” of a conference season that left them confused about the government’s free market principles, questioning its economic strategy and increasingly worried about Brexit.’
o IoD says there is “wavering confidence in the wider economy”. Uncertainty remains a rare constant
o Many concede that the alternative (whilst Mr Corbyn is doing the sensible thing and remaining quiet) is entirely unknown
o Bank of England says transition deal must be agreed by Christmas otherwise individual banks will have to trigger contingency plans
o FT reports Trump administration as objecting to a deal between the EU and UK to split the wider group’s import quotas. FT says this ‘undermines efforts by the May government in London this week to portray the WTO deal with the EU as a significant win, something made doubly painful by Mr Trump’s past backing of Brexit.’
YESTERDAY’S LATER TWEETS:
• Later tweets: Just Drinks points to slower growth in coffee as signal that threat to soft drinks & water now receding
• UK services PMI picked up in Sept from 12mth low in August. Hits 53.6 (vs 53.2 in Aug). Anything over 50.0 implies growth
• UK services up but, at 53.6, they’re lagging Europe which was +56.7 last month.
• Stronger services sector increases chance of Nov 2 rate increase. Pound up, markets down.
• Tory splits ahead of Mrs May speech today. Davis says no deal is acceptable, others splutter into their drinks
• Tesco says: ‘turnaround firmly on track’ as co reinstates dividend. UK LfL sales growth 2.1% in Q2
• Big Ticket: Topps Tiles says ‘moderate improvement’ but adds ‘market conditions remain challenging’. Profits to be at bottom of range
START THE DAY WITH A SONG:
Yesterday’s song was Moby ‘Extreme Ways’. Today’s lyrics are:
Trying to start a war, I heard it all before,
Now go fetch me a milkshake don’t forget the straw
RETAIL NEWS WITH NICK BUBB:
o DFS Furniture: Back on 10 August, DFS Furniture warned that “owing to significant declines in store footfall and customer orders across April, May and June” EBITDA for y/e July would be at the lower end of the previously guided £82m-87m range and so the news in today’s finals that EBITDA fell 13% to £82.4m (with PBT down 22% to £50m) is no surprise. But after the surprisingly upbeat trading update from ScS on Tuesday and yesterday’s downbeat update from Topps Tiles, all the focus will be on the current trading news and outlook from DFS, with mixed vibes. CEO Ian Filby says “the UK furniture market continues to be very challenging and the outlook for the sector remains uncertain. Since early July our order intake has however been satisfactory, seeing a limited decline in year-on-year like-for-like order intake that we believe is consistent with the overall furniture retail market and is
o Weather Watch: Memories about “the weather” are always notoriously short-term and, after a very autumnal September this year (notwithstanding a warm final week in the month), it’s easy to forget that September last year was notably warm…The Retail weather consultants Planalytics issue a regular monthly overview of how last month’s weather “should” have affected trading on the High Street and their overall headline for September was “Much Cooler Than Last Year”, flagging that there was positive demand for Autumn products. Temperatures were slightly cooler than normal across the country in September and (averaging 13.4°C, versus 15.3°C) were nearly 2 degrees C cooler than last year (which had been the second warmest September for at least 55 years). All major cities fell below last year’s temperatures, but the differences were highest across the South-East. Rainfall was generally
o Today’s Press and News: The front page headlines are full of the calamitous speech by the beleaguered PM at yesterday’s Tory Party Conference, eg “Coughing and spluttering – May’s British dream turns into nightmare” in the Guardian , “May endures ordeal in speech aimed at reasserting authority” in the FT and “May on final warning after speech shambles” in the Times. In terms of Retail news, mighty Tesco gets far more coverage than and little Topps Tiles…The FT has a big article about Tesco headlined “Customer-first policy brings rich harvest for Tesco chief”, with the by-line “Once-sprawling empire has become a focused retailer praised by its partners”, whilst Lombard column in the FT is headlined “Tesco’s self-help pays dividends as it avoids drastic distractions” (although it notes that profits were boosted by property disposals and UK sales growth was a bit disappointing). The FT
o News Flow This Week: The SMMT new car sales figures for the key “plate change” month of September are published later this morning and the JD Sports EGM on its Sports Zone joint venture deal in Spain/Portugal is being held today. Tomorrow brings a Motorpoint trading update.
o Oxford Street Watch: Having flagged the other day the disastrous M&S acquisition of 19 Littlewoods stores in 1997 we were wondering what happened to the Littlewoods store on Oxford Street, near Marble Arch. And then up popped our Barnet correspondent to point out that this became a Next store, which is still there, over the road from the flagship New Look store and the big Primark (which used to be C&A back in the day).