Langton Capital – 2017-10-18 – Merlin, inflation, costs, Revolution, Conviviality & other:
Merlin, inflation, costs, Revolution, Conviviality & other:
A DAY IN THE LIFE:
I think you know you’re a bit old-fashioned when you find yourself still thinking that it’s rude to text in a meeting when someone else is speaking.
Because, whilst I’d maintain that it is, rude is what rude does and if everyone texts, avoids eye contact and sniggers at jokes on their phones while apparently being paid to attend a presentation, then it can’t be out of order, can it?
It must just be the new normal but give me strength. On to the news:
STONEGATE BID FOR REVOLUTION LAPSES, DELTIC STILL WILLING TO TALK:
• Revolution shareholders have rejected the 203p per share bid for the company from the Stonegate Pub Company.
• The court meeting yesterday did not attract sufficient support and the merger scheme has lapsed.
• Revolution says ‘the Board remains confident regarding the underlying strength of the Revolution business and its ability to operate and grow as a standalone business, not least given the scale and strength of Revolution’s new venue pipeline and the returns achieved by new venues opened in the last two years.’
• Revolution adds ‘the Board considers that its clear and focused strategy, the quality of Revolution’s sites and customer proposition, and the talent within the business, leave the business well placed for further growth. Revolution is proud that it has delivered 16 consecutive quarters of like-for-like sales growth.’
• Revolution hints at bid distraction saying ‘the Board is pleased that the management team is now able fully to focus on running the business, starting with the successful delivery of the important Christmas trading period.’
• Deltic has said it ‘notes with interest the announcement by Revolution Bars Group plc confirming the lapse of Stonegate’s offer for Revolution following the shareholder vote at the Revolution court meeting, at which some 53.76% of the Revolution shares that were voted were cast against the scheme.’
• Deltic then refers to rule 2.8, rule 2.6 etc. but ends up saying it is still interested in talks. Following its announcement last week that it would not make a bid, it is locked out for 6mths. However, this restriction does not apply if the Revolution board agrees to talk or if a third party (probably a fourth party) makes a bid for the company.
• Stonegate says it ‘wishes Revolution and its shareholders every success in the future as Revolution continues as an independent business.’ Chairman Ian Payne comments ‘Stonegate has always been disciplined in its approach to acquisitions. We put forward what we believed to be an attractive proposal and made an offer at a 62 per cent premium to the undisturbed share price which was unanimously recommended by the Board. However, we respect the shareholders’ decision and wish them all the best.’
• Deltic operations director Jason Thorneycroft told the Pub Goers’ Conference last week that 36% of younger millennials (18-24yr olds) still live at home and some 40% of them are parents themselves.
• Millennials prefer texts to the phone, they stay in a job for only 2yrs and they arguably spend longer planning a night out than they do on the evening itself.
• A celebrity DJ is less important than Facebook recognition. And Instagram is more important than Facebook. Tinder is a big deal. A night out has to be about more than boy meets girl.
• Dry January is big. Halloween is the biggest night of the year. Pay weekend is still important & shots are less of a big deal as younger customers are drinking less and are eating (and photographing) more food.
• Festivals are big. It was Ibiza. Now it’s Croatia and the UK scene. A strong festival season can strip pubs & clubs of their younger customers. ‘Return’ parties can be a big thing.
• Langton: Millennials take more photos in a week than their parents took in a year. Indeed more than their grandparents probably took in a lifetime & it’s no use saying to them ‘get a life’ because this is their life. They don’t have much money – but they will have more – and they are the future. Selfish or globally aware? Better educated or simply longer marinated in an institutional environment? It amounts to the same thing & the market needs to be addressed.
• Langton: And they’re into experiences. Many have – or at least say they have – maximum stuff and they’re into a new buzz. And not necessarily thrills. Bungy jumping and paragliding may still be on the fringe and it’s not the type of experiences that their parents flirted with (like waking up on the pavement or checking what Casualty looks like at 2am) that provides them with a good night out. Throwing up at noon the next day isn’t their thing. I know this is a bit Shoreditch rather than mass market but it could be about a picture or the way food is presented or a colour scheme. No, really.
PUB, RESTAURANT & DRINK PRODUCERS:
• Conviviality PLC has announced that Andrew Humphreys, Group CFO, will be leaving the business. The group says ‘Andrew leaves with our utmost appreciation and thanks for the significant role he has played in the transformation of the Company from its roots as the UK’s leading off-licence brand and alcohol wholesaler to Franchisees, to the UK’s leading independent wholesaler and distributor to the on-trade and off-trade.’ The group adds ‘Conviviality is pleased to announce that Mark Moran will be joining the board of Conviviality Plc as Group CFO, effective from 30th October 2017.’
• Jamie Oliver Restaurant Group, has brought in external advisor to work with its new management team to help it navigate through its next phase, the MCA has reported. The group are believed working with AlixPartners on its strategy for further developing its business in the UK and internationally.
• Pub operator and brewer Brakspear is to hire two new appointments, a retail marketing manager and an executive chef.
• Sushi and bento chain, Wasabi, has put another two sites on the market in central London, per the MCA.
• The BBPA has stated that if rate rises are not frozen from next April, many more pubs face closing. The organisation has called on the Chancellor of the Exchequer to be ‘bold’ in his November budget and provide rates relief and halt beer duty rises.
• MEATliquor has closed its Bristol site this weekend, two years after it first opened in the city. A spokesperson for the group said: ‘Our decision has not been an easy one, but after a series of incidents, both in the local area and in the restaurant itself, we have decided to put the safety of our staff first, something which is of paramount importance to us’.
• Kantar Worldpanel predicts supermarket price rises will peak later this year.
• Happiour, a daily food and drink app used by over 100,000 people in central London alone, has been acquired by MyVoucherCodes.
• Leading pub trade and pubgoer associations have jointly called on the government to take decisive action over the looming £60m business rates ‘bombshell’. The recent RPI inflation figures of 3.9% means the sector pay an additional £60m in business rates from next April, equivalent to over £1,500 per pub. The pub sector is already overpaying on rates by over £500m and faces further increases of over £125m during this revaluation period. The ALMR, BBPA, BII, CAMRA and SIBA are calling for the extension of business rates relief for pub and an increase in the amount of relief to £5,000 – which would reduce the level of overpayment by about one third.
• Sainsbury’s is cutting 2,000 jobs as the supermarket looks to slash £500m of costs in a bid to counteract rising pressures from the return of food inflation and rising wage bills.
• The BRC and other firms have warned that British businesses could face an extra £1bn tax bill next year unless the government freezes business rates. Helen Dickinson, chief executive of the BRC, said: ‘The consequences of today’s RPI figures could be severe for many shops in a precarious position and struggling to survive. Consumers, already seeing household incomes eroded, will face further misery as the pound in their pocket buys them less at the checkout.’
Tui is facing a ‘mighty challenge’ to protect digital sales as it ditches the Thomson name after 52 years.
HOLIDAYS, LEISURE TRAVEL & HOTEL:
• Hostelworld Group is today hosting a Capital Markets Day in London for institutional investors and analysts. It says ‘the event will focus on the Company’s marketing, product development and supplier relationships’ and adds ‘no new material trading or financial information will be disclosed.’ A copy of the presentation materials will be made available on the Hostelworld Group plc website.
• Speakers at the Annual Hotel Conference in Manchester have painted a bright picture of UK hotel prospects, although global ratings company Early Metrics says that ‘companies are already assessing the implications of fundraising, talent acquisition, and talent retention’ in light of Brexit.
• The latest first annual edition of The Knight Frank UK Hotel Trading Performance Review has suggested that UK Hotels ‘have enjoyed a particularly robust trading environment in both London and Regional UK, reinforced by a weak currency, resulting in a greater than anticipated boost in tourism.’
• Knight Frank says ‘RevPAR is forecast to grow by over 7% for the full year 2017, driven by 9% RevPAR growth in London and record high occupancy rates in the UK Provinces’. It says ‘the depreciation of the pound has caused expenses to increase across all hotel operating departments.’
• Knight Frank says ‘looking forward to 2018, we retain a cautious outlook, albeit with continued growth in RevPAR.’
• Hurricanes Irma and Maria may cost Carnival Corporation 10-12% a share, according to CEO Arnold Donald. However, despite this Donald said he expected an upturn in business for the final quarter of the year.
• Greybull Capital, owner of Monarch Airlines, is being urged to foot the £60m bill for repatriating 110,000 passengers, by transport secretary Chris Grayling. Grayling said corporate responsibility was an important part of ‘corporate reputation’, but admitted there was no formal legal mechanism to force the payment.
• US-based Dream Hotel Group has announced its first UK hotel will be in Birmingham Central Hall, launching in 2020, according to The Caterer. The hotel will contain 135 rooms.
• Ex-Hurricane Ophelia has left airlines counting the cost after causing Flybe to ground 170 flights whilst Ryanair has had to cancel more than 140 services.
• Merlin shares plunged almost 20% in early trading yesterday on the back of its profit warning. The group believes that it can source growth overseas but says ‘whilst it is too early to predict the outlook for 2018, it is likely that the recent trends experienced in London will persist for the foreseeable future.’
• Frame, a four site London fitness chain, has secured a £6m investment from Piper.
• Hornby has warned again that revenue and profits will be lower than expected this year. Interim chairman David Adams has departed and new CEO Lyndon Charles Davies has embarked on an initial business review in which it hopes to ‘maximise the value of its brands’.
FINANCE & MARKETS:
• UK CPI hit a 5yr high of 3.0% in September, up from 2.9% in August. The rise makes a November rate rise more likely. The ONS said ‘food prices and a range of transport costs helped to push up inflation in September. These effects were partly offset by clothing prices that rose less strongly than this time last year.’
• NIESR says inflation may not peak until it sits above 3%. It says ‘today’s inflation data together with high employment levels and our view that economic growth is nudging higher in the second half reinforces our judgment that the Bank of England will reverse the 25 basis point reduction in Bank Rate announced in August last year at its November meeting.’
• Bank governor Mark Carney has said it is “more likely than not”, inflation will rise further in Oct & Nov. He says a rate rise could be appropriate in November.
• Oil up 40c at $58.22
• Sterling down vs dollar at $1.3185
• Pound down vs Euro at €1.1205
• UK 10yr gilt yield down 6bps at 1.27%
• World markets: UK down yesterday & Europe also down. US higher but Asia lower in Wednesday trade
o Home Secretary Amber Rudd has said that it is ‘unthinkable’ that the UK will not secure a trade deal with the EU
o Brexit minister David Davis has told parliament that Britain should be prepared to walk away from talks without a deal.
o Accountants RSM say firms are ‘cautiously optimistic about post-Brexit world’. Manufacturing firms are most optimistic.
o The OECD has said that the UK economy would be boosted if it changed its mind and remained within the EU.
o The Treasury has rejected calls for a second EU referendum saying ‘we are leaving the EU and there will not be a second referendum.’ It may have exceeded its brief in commenting so widely.
o BusinessEurope has urged the British government to speed up talks
o The EU has said the UK needs to make more concessions before talks can move on
o Reuters has reported that ‘several more financial services firms have committed to shifting operations to Dublin as a result of Brexit’. It says the financial institutions ‘are not ready to make the move public’
PRIOR DAY’S LATER TWEETS:
• Later tweets: Millennials. Burgers are big. Quick service is essential but Millennials aren’t loyal & they don’t need cutlery…
• Things change. Some 44% of British people are drinking less when going out than this time last year
• MERL guides down on profits after early summer growth fades. Current trading volatile & difficult overall
• Merlin has updated on current trading saying it has seen ‘difficult summer trading after strong early momentum’
• CPI hits five-and-a-half-year high of 3.0% in September. Was meant to be abating by now. Av. Wages only +2.1%. Squeeze is on…
• Deloitte CFO survey shows 60% believe Brexit will damage Britain. Down from earlier 72% as some now making virtue of a necessity
• MERL shares hammered. Down c20% to put them at 4yr low as Group fails to sufficiently sugar the pill
START THE DAY WITH A SONG:
That was London’s hipster kings, Hot Chip with ‘How Do you Do?’ yesterday. Today who sang:
Up against your will,
Through the thick and thin
RETAIL NEWS WITH NICK BUBB:
• John Lewis Partnership Sales Watch: Cool weather and soft comps helped John Lewis deliver decent sales growth in October last year, but this October has been a different story so far…Yesterday’s sales figures for last week from JLP revealed that John Lewis found the going tough again, with sales slumping by 4.6% in gross terms (c5.5% down LFL) in w/e Oct 14th. Thanks to the warmer weather, Fashion sales were down by 5.1% gross (even though Beauty was up 4.3%), Home was down by 2.0% gross and Electricals were down by 6.7% gross (thanks to good smartphone sales). Over the last 11 weeks, however, John Lewis sales have been cumulatively up by a bit over 1.5% LFL (up 2.7% gross). Over at Waitrose sales were up by 0.7% gross last week (c2% down LFL), with “summery” food selling well. Over the last 10 weeks Waitrose sales have cumulatively been broadly flat LFL (up 1.9% gross).
• Grocery Market Share Watch: The latest Kantar/Nielsen grocery sales figures came out at 8am yesterday morning and the less well-known Nielsen survey was headlined “Grocery inflation gains momentum but shoppers keep spending”. In the four weeks ending 7th October, Nielsen said that UK supermarkets saw sales revenue rise 3.9% year-on-year , whilst the volume of sales increased by just 1.6%. Excluding the discounters, volumes didn’t increase at all, however, and supermarket food inflation was measured at 2.2%, its highest level for nearly four years. All of the major supermarkets saw year on-year sales growth in the twelve weeks ending 7th October, according to Nielsen, with Tesco achieving the best performance of the “Big 4”, with 2.2% sales growth. Outside of the discounters, M&S Food (4.3%) and Iceland (3.1%) saw the biggest year-on-year rise in sales. The rival Kantar survey
• Today’s Press and News: Thirty years ago, global stockmarkets were having a torrid time and the front page of the FT flags up a feature on “Black Monday Revisited” (“Wall Street veterans relive the day and ask if it could happen again”). The main Retail focus is on yesterday’s ASOS results, with Lex column in the FT noting that the ASOS share price has gone sideways for seven months and thundering that “As sexy as ecommerce looks, investors should seek out the value beneath the frill. Asos and its peers look overpriced”.
• News Flow This Week: The Travis Perkins Q3 sales and the ONS Retail Sales figures for September are out tomorrow morning.