Langton Capital – 2018-01-11 – Tesco, M&S, payrolls, property values, sugar & other:
Tesco, M&S, payrolls, property values, sugar & other:
A DAY IN THE LIFE:
Langton has been watching the development of Bitcoin with some interest & is considering an ICO (initial coin offering) of its own crypto-nano currency, LANcoin.
LANcoin with be a Local Area Network based, blockchain inspired measure of value with a smattering of quantum physics inspired nonsense thrown in for good measure. It will be based on the number of pints of bitter that the Langton team can consume in a week, a number which, though finite in principle, has yet to be fully tested.
Parties potentially interested in investing in LANcoin should send us money. We will accept cash from any country and in any denomination. No cheques. We will then communicate irregularly from a beach somewhere and may give the money back, less a service charge, after a suitable period of extremely high living*. On to the news:
*If the FCA or the MIFIS II chaps are reading, this is not a genuine offer. Check under ‘humour’ in your dictionary.
PUB, RESTAURANT & DRINK PRODUCERS:
o Hospitality workers’ pay packets are growing faster than in any other sector, with wages up 10.4% over the course of 2017, as the alcohol industry faces a shortfall of workers. By contrast, a survey published by consultancy Fidelity International last year found that average wages for UK workers are expected to rise by just 2.8% in keeping with inflation, per The Telegraph. Executives in the drinks industry have warned that new immigration laws will create a labour shortage in a number of sectors and Frazer Thompson, the chief executive of English winemaker Chapel Down, said that Britons will ‘starve’ if European fruit pickers are shut out after Brexit, before the potential labour shortage is addressed.
o EI Group has bought back another 131,500 of its own shares for cancellation at 142.5p per share.
o Performance remains mixed with the fall of Christmas (on a Monday), helpful for many operators. Those looking for an exit in 2018 also seem to have performed more strongly.
o M&S has updated on Christmas saying ‘M&S had a mixed quarter with better Christmas trading in both businesses going some way to offset a weak clothing market in October and ongoing underperformance in our Food like-for-like sales. As a result, full year guidance remains unchanged.”’
o MKS says ‘in our Food business, ongoing trading pressures continued in the lead up to Christmas as consumer spending and choices reflected tighter budgets.’
o Tesco updates on Q3 saying it delivered ‘continued UK market outperformance in like-for-like sales and volumes, particularly in fresh food’. It says this positive momentum ‘continued into [a] record Christmas in the UK and ROI.’ CEO Dave Lewis comments ‘we have continued to outperform the market throughout this period, particularly in fresh food, thanks to our most competitive offer for many years. Our trading momentum accelerated across the third quarter and into December, with the four weeks leading up to Christmas Day delivering record sales and volumes in the UK.’
o Moss Bros has become the third retailer to issue a profit warning over the festive period, with shared down 16% on the news. The group noted ‘lower footfall than anticipated during December’ and anticipates ‘challenging retail conditions to continue for the foreseeable future’. Pre-tax profit forecasts have been scaled back to between £6.5m and £6.8m by city analysts. Brian Brick, chief executive, said that the profit warning was ‘frustrating’ after the business had worked hard on a turnaround and had been achieving growth in its retail business.
o Fleurets updates on pub property values saying ‘property transactions in the pub market have shown remarkable resilience over the past year, despite political and economic uncertainty and the added burden of recent sector legislation.’ The agent says ‘activity and sale prices have been driven by the increased quality of transactions with higher trading levels and decentralisation leading to premium prices being paid for the best regional assets.’
o Fleurets reports that the freehold value of the average pub sold last year rose by 14.6% to £416.6k, largely on the back of fewer bottom-end disposals. The agent says ‘the pub market is very diverse, ranging from large food-led managed houses to high street bars, and from privately owned freeholds to leases and lettings (tied and free of tie).’
o Fleurets reports that ‘tenanted pubcos have continued to selectively shed under-performing sites, with the most active and creative being Ei Group, who have not only sold individual sites, but they have sold packages of investment properties as well as expanding their managed estate. They have also taken great strides in offering large numbers of properties on free of tie leases – for all uses, not just for pub use.’ Fleurets says ‘the reduced supply of bottom end freehold pubs has continued. Lower supply along with continued strong demand for these sites, has led to an increase in the sale price of lower end properties.’
o Fleurets reports ‘we have seen an increase in demand lead to higher prices being paid for units in city centres and higher value towns.’ It reports that ‘the volume of free-house sales was marginally up in the South but significantly down in the North.’ It says ‘despite the leap in the volume of transactions in H2 2016 potentially signalling a new dawn of a more active and fluid market, 2017 saw a 24% drop in the number of freehold free-house transactions. This was perhaps a reaction to the uncertainty over Brexit.’
o Moody’s says ‘Debenhams’ weak Christmas results are credit negative.’ No rocket science there. Moody’s goes on to say that the negative sales growth reported by Debenhams ‘is credit negative for Debenhams, and prompted us on Monday to downgrade the company’s long-term rating to B1 from Ba3.’
o Moody’s says re Debenhams ‘the downgrade also reflects the increased execution risk behind a strategy announced in April 2017, prompted by the ongoing difficulty of UK trading conditions.’ Moody’s says that digital growth is one of the few bright spots.
o The ALMR is urging MPs to support the UK’s music venues following yesterday’s Parliamentary debate on the Agent of Change Principle. ALMR Chief Executive Kate Nicholls said: ‘A UK-wide adoption of the Agent of Change Principle would be a pragmatic and positive move that would secure the status of our hugely important music venues and nightclubs. As a country, we are fiercely proud of our world-class musical talent and our history of producing musical pioneers and innovators. Should music venues continue to be placed at risk by developers, this talent will have nowhere to flourish. Venues are crucial parts of local communities and fantastic cultural and economic assets.’
o Dunkin’ Donuts US has appointed Scott Murphy as the new chief operating officer.
o Lidl reports record UK sales in December, up 16% year on year, making it the fastest-growing grocer of the month. Chief executive Christian Hartnagel said ‘Customers came into our stores to buy more of their Christmas items, knowing they could find high quality products at market-leading prices.’
o Irn Bru makers AG Barr have sought to reassure fans that its iconic drink will taste the same despite introducing a new recipe containing much less sugar.
o Coca-Cola is planning a ‘full brand restage’ of its no-calorie Diet Coke in North America, which will see the debut of four new flavours. While Diet Coke will still be available in its classic formulation, it will also now come in flavours including Diet Coke Ginger Lime, Diet Coke Feisty Cherry, Diet Coke Zesty Blood Orange and Diet Coke Twisted Mango. The brand will also get a new look, with the revamped beverage line set to hit store shelves in mid-January.
o Italy’s Ferrero is close to formalising a $2.8bn deal to acquire Nestlé’s US confectionery business, which includes brands such as Laffy Taffy and Crunch chocolate bars. Ferrero outbid US rival Hershey and private equity group Rhône Capital and is set to sign off on a deal on Sunday, according to people close to the situation.
HOLIDAYS & LEISURE TRAVEL:
o Philip Camble, director at Whitebridge, has predicted that revenue per room in London Hotels ‘will decline by no more than 2%’ in 2018, whereas the STR has said RevPAR will remain flat.
o Snowstorms in the Alps have left thousands of skiers stranded in resorts, with one British snowboarder reported missing. Over seven foot of snow has fallen in the last two days.
FINANCE & MARKETS:
• NIESR says it believes UK GDP grew by 0.6% in Q4 last year. It grew by 0.4% in Q3. It says the Q4 number is the strongest quarterly growth estimate since the fourth quarter of 2016. NIESR says ‘based on this, the UK economy expanded by 1.8% in 2017.’ The NIESR reports ‘the recovery has been driven by both the manufacturing and the service sectors, supported by the weaker pound and a buoyant global economy, while construction output continues to lag.’
• UK manufacturing is growing at its fastest rate since early 2008 per ONS.
• UK trade deficit including trade in services rose to £2.8bn in November. The trade deficit in physical goods narrowed.
• The physical trade situation saw exports rising more rapidly than imports. This was partly composed of a sale to foreigners of artwork. The ONS reported ‘the [physical goods] trade deficit narrowed in the last three months, mainly due to increased exports of services, shipments of works of art and cars. Over the last year exports of goods, particularly cars, machinery and crude oil, have continued to increase, and at a faster rate than imports.’
• Sterling down a little vs dollar at $1.35
• Pound down vs Euro at €1.1293
• Oil unchanged at $69.14
• UK 10yr gilt yield up 1bp at 1.29%
• World markets: UK mixed yesterday with US and Europe down. Asian markets mostly down in Thursday trade.
o HMG says financial services are pivotal to the “bespoke” Brexit trade deal that it wants with the EU
o HMG calls upon EU not to allow banking ‘fragmentation’. The too big to fail problem might suggest that this would be a good idea
o PM Mrs May is to meet with City business leaders today
ADMIN UPDATE, RESEARCH ETC.
• Langton is between offices. Please communicate via email. MIFID II is now in operation.
• We are putting together a compendium of 60-seconds pieces for publication this month at £200 plus VAT, free to clients. Please let us know if you would like a copy.
START THE DAY WITH A SONG:
Yesterday’s song was Laid by James. Today, who sang:
I know a man ain’t supposed to cry,
But these tears I can’t hold inside
RETAIL NEWS WITH NICK BUBB:
“Super Thursday”: Today is, of course, “Super Thursday”, although without the scheduled Debenhams, Moss Bros and Mothercare updates it is not quite so busy as it could have been…but the Booker Q3 update has been brought forward from tomorrow and Card Factory, Marshall Motors and Footasylum have also stepped into the breach, on top of the Marks & Spencer Q3, the Tesco Q3, the Boohoo Q3, the John Lewis Partnership update, the Game Digital update and the AO.com update, with the House of Fraser update also expected. Today is obviously therefore a good day to bury bad news, but the only slightly sour note we can see so far is that Card Factory have warned of continuing margin pressure.
But M&S have also highlighted margin pressure and their Q3 update will be seen as a bit disappointing (Food down 0.4% LFL and Clothing/Home down 2.8% LFL, despite a late Christmas run), in contrast to Tesco who delivered 3.4% LFL Food growth in the UK in the 6 week Christmas period, albeit issues with tobacco supply because of the collapse of Palmer & Harvey affected total sales).
Jewellery Watch: In the light of the BRC-KPMG Retail sales survey overview that Jewellery was the worst-performing sub-sector in December, it was interesting to see yesterday that the Signet update in the US flagged that their UK sales figures at Christmas (9 weeks to Dec 30th) were terrible: just over 10% down LFL, with H Samuel and Ernest Jones equally bad. Signet said that “sales declined due principally to bridal and diamond fashion jewellery, partially offset by higher sales in select prestige watch brands and strength in eCommerce”.
News Flow This Week: The Debenhams AGM is being held today at 2pm at their swish HQ near Kings Cross, if you fancy going along to vote against the re-election of any of the Directors…And then tomorrow we get the B&M Q3 update