Langton Capital – 2018-04-18 – Vianet, BrewDog, questions, contactless, capacity etc.:
Vianet, BrewDog, questions, contactless, capacity etc.:A DAY IN THE LIFE: It’s getting sunny out there and, with our grass growing and the day on which I need to first cut it in 2018 fast approaching, I can’t help wondering where are all those rabbits when you need them? Because, whilst the bullfinches are eating our blossom, the squirrels are at the bird feeders and the rabbits are digging up our few, rather sad-looking flowers, nothing in the garden seems to want to eat the grass and there’s plenty of it to go around. Hence, as I’ll be the one who’ll have to deal with it in the end, a look at the lawnmower was warranted a couple of days ago and, as it’s out of petrol, the battery is flat and one of the tyres seems to have gone down, I know what I’ll be doing later this week. Or I might just try to find a pub showing the lunchtime football. On to the news: QUESTIONS, QUESTIONS: A couple more in our ad hoc series of non-rhetorical questions regarding F&B and leisure in general. Today we ask who will have to ultimately shoulder the sugar tax and why are there no 1950s casual dining brands still on the High Street. QUESTIONS, QUESTIONS (8): When is it your problem, and when is it mine? • Question: The sugar tax is a tax on sugar. Producers pay it, but can they pass it on – initially to retailers & ultimately to the consumer? Well the more visible a tax, the more widely understood it is, usually the lower the resistance to passing it on. But there’s stickiness at each stage. It’s pass the unpleasant parcel. Retailers don’t want to pay more and the consumer certainly doesn’t but, with the sugar tax, changes in behaviour (and reduced sugar levels in drinks) may mean this is less of a problem than might have been expected. Conclusion: Behaviour is changing, producers are using less sugar, the tax won’t raise much but it is changing behaviour. QUESTIONS, QUESTIONS (9): Why are fast food brands longer lived than casual diners? • Question: Why are the fast food brands that were around when I was in short pants still with us, while casual diners seem to be short-dated? McDonald’s, Burger King, KFC etc. are 50, 60, 70yrs old but casual dining brands tend to sprout, grow and then wilt. Are they less mature as a genre? Maybe but remaining relevant seems to be tough. Where are Golden Egg, Pizzaland etc.? Resuscitating brands may be a struggle (or a mug’s game). Conclusion: Maybe fast food is ‘simpler’ with less to go wrong, less to date. Punters aren’t making a fashion statement when they grab a burger etc. For the casual diners, this is not the case. CGA ALIX PARTNERS SURVEY HINTS AT MARKET SATURATION: • CGA & Alix Partners have seen only a small decline in licensed premises numbers in 2017. But they see ‘tough challenges likely to follow’ • CGA comments ‘many casual dining brands continued to expand on British high streets over the last year, despite the host of challenges facing the eating and drinking out sector – fuelling concerns about market saturation.’ • It says its Market Growth Monitor ‘reveals that Britain had 122,221 licensed premises at December 2017—a drop of just 0.3% on 12 months earlier, despite mounting cost pressures, weak market confidence and uncertainty over Brexit.’ • CGA comments that most closures in 2017 were of drink-led pubs and bars. This continues the trend of recent years. But it says ‘Britain’s casual dining brands remained in growth last year, with overall restaurant numbers rising by 0.6% in the year to December.’ • This is surely part of the problem. The market does not have a braking mechanism, only a crashing mechanism. • CGA says problem is acute on the High Street. It believes that UK markets ‘has 16.7% more restaurants than it did in December 2012’. It says the number of licensed premises on high streets increased by 0.6% in the year to December 2017—compared to declines of 0.8% and 0.2% in suburban and rural areas respectively.’ • In common with statements from a number of operators, CGA’s survey is seeing ‘tough trading conditions in outer London, where total licensed premises fell 1.9% in the year—compared to 0.6% growth in inner London’. • Alix Partners’ MD Graeme Smith comments ‘with some casual dining operators announcing restaurant closures at the start of 2018, there has been much talk of over-supply in many of Britain’s cities and towns.’ • CGA comments ‘2018 is shaping up into a tough year for pub, bar and restaurant operators.’ It says the survey suggests ‘we may not have seen the last of closures from some of our biggest casual dining brands.’ • CGA ends on a positive not saying that ‘people are still going out to eat and drink, and operators who can deliver value for experience and select the right locations for their new openings can still thrive.’ CONTACTLESS PAYMENTS: • With Visa and Barclaycard putting out numbers suggesting that pubs and restaurants are growing revenues by 7% or 8% on last year, we should mention contactless spending. • Because this is a Put something in about contactless. Because here the spending limit rose from £20 to £30 and, allied with the underlying move to plastic as a medium of payment, this has led to significant growth in its use for relatively small value transactions. • Hence there could be some slightly misleading signals coming out from the data. • Plastic may now be used in up to 60% of bar and restaurant transactions. It will be higher in restaurants, lower in pubs but, to anyone who has become used to the bar staff approaching with a PDQ machine after they have poured the drinks, it will not be surprising to learn that plastic, and particularly contactless, payments are up by perhaps 6ppts to 10ppts year on year. • To an organisation such as Visa, which will not be able to see what is going on with cash transactions, this could lead to the above sort of over-optimistic suggestions. PUB, RESTAURANT & DRINK PRODUCERS: • Vianet Group has updated on trading for its year to end-March saying ‘trading for the second half of the year has been largely as anticipated and, as a result, the Group’s full year profits will be broadly in line with market expectations’. • Vianet says it will recommend a maintained final dividend of 4.0 pence per share. • Vianet reports its ‘Smart Machines division continues to deliver growth in connected devices and penetration into the European market.’ It says ‘the integration of the recent Vendman acquisition and bedding in of the material contract win with a global coffee company are both going well, as is progress on increasing the proportion of recurring revenue as a percentage of new sales.’ • Vianet says ‘whilst Smart Machines revenue stream transition from capital sales to recurring annuity suppresses short term financial performance, it is providing greater visibility and quality of future earnings for this division.’ • Vianet Chairman James Dickson comments the company ‘will again deliver good year-on-year profit growth.’ He adds ‘the Group’s medium to long term prospects are exciting, particularly for telemetry and payment solutions for the coffee vending market, where momentum is being boosted by good progress integrating the Vendman acquisition, and better visibility on delivery of the material contract win with a global coffee company.’ • Brewdog has raised £15m in its Equity for Punks V investment round, more than 50% more than their initial target. The group plan to use the money to fund build another craft beer hotel, launch their own TV network and create BrewDog Asia! 2018. • Jamie Oliver has filed his Australian restaurants for administration. The celebrity chef had six Australian restaurants. Most of the restaurants have been sold to restaurant group Hallmark which runs the Jamie’s Italian restaurants under a franchise agreement. • Starbucks has announced it will close 8,000 company-owned branches in the US for an afternoon next month to carry out ‘racial bias’ training. The training follows an incident were two black men were arrested while they waited for a friend in a Starbucks. • Costa Coffee has said it will recycle as many disposable cups as it sells in 2020. This plan, if achieved would lead to 500m coffee cups a year being recycled. Costa will encourage waste collection firms to collect the cups by paying them a supplement of £75 per tonne. • Accolade’s first Wine Report has found wine drinkers are moving to quality over quantity. The report recorded data from 8,000 regular wine drinkers and found overall volumes had decreased but value had increased. • The Thai restaurant group, Lemongrass, is seeking a business partner to drive its next phase of expansion. The 13 site strong group say they are willing to give up 50% of the business if the deal is right. • A poll conducted by Wagamama has found that nearly 25% of respondents took between eight and 15 mins for lunch. Only 17% of respondents said they took 60 mins for Lunch. • Following on from Wagamama’s poll, the group have released a new app called Wagamamago, which allows customers to avoid waiting for bills, by paying on the app as they walk away. The group calculated that the average diner waits for 12 mins each meal for the bill. • Export volumes of Burgundy have climbed 0.7% in 2017, with export values up 10.7% to €906 million. • Jamie Oliver has signed a 10-year deal with Aramark that will them create new food concepts and deliver them to workplaces across Northern Europe. • The Chinese government is preparing to lower the country’s VAT tax from the current 17% to 16% for imported goods, which should benefit popular wine exporters such as Australia and Chile. • Healthy food and juice specialist Crussh has announced a franchise partnership with SSP that will allow the brand the expand into transport hubs across the UK and Europe. The first site is due to open in May 2018 at London Paddington station, with a pipeline of additional outlets under discussion. Shane Kavanagh, CEO, Crussh, comments: ‘We are hugely excited about working with SSP given their expertise and excellent track record and the opportunity to bring our brand of healthy fit food-to-go into travel rail and air locations for the first time. Paddington is the perfect place to start, and we can’t wait to get going.’ • The Lakes Distillery’s Lakes Gin has launched in Tesco stores in the North West of England following a string of strong results and awards. HOLIDAYS & LEISURE TRAVEL: • London is no longer one of the top ten most expensive business travel locations in the world after being overtaken by Monaco, Basel and Paris, per ECA’s Daily Rates report. New York City takes the crown as the most expensive place for a business trip in the world, costing an average £611 per day, while Geneva is the most expensive in Europe and second in the world. • Eurostar reports sales revenues up 9% to £253m for Q1 2018, with passenger carryings also up 4% to 2.36m. US passengers rose by 27% over the same period last year while the number of business travellers using the service increased by 6%. More than four million passengers a year travel by air between London and Amsterdam, giving the new rail service between the two cities ‘significant’ growth potential. • Extended-stay hotels have continued to produce good results, but some US domestic markets are showing declines. OTHER LEISURE: • Secondary websites are offering World Cup tickets for almost 40 times their face value, according to Which?. Category one tickets for England against Tunisia on 18 June were advertised on five sites for between £480 and £11,237, despite selling for £296 on the FIFA website. • Netflix expects overseas sales to overtake its domestic US sales in the next three months following record revenue and subscriber growth. Netflix now has 125 million subscribers, after adding 7.4 million more between January and March with three quarters of new subscribers coming from outside the US. • Per Sky, Aston Martin has signed up seven banks in preparation for a £4bn IPO. Bank of America Merrill Lynch, Credit Suisse, HSBC, Unicredit, Deutsche Bank, Goldman Sachs and JPMorgan will be involved. • Kids Planet, a Manchester-based nursery group, has received a further £6.5m investment from BGF. FINANCE & MARKETS: • IMF says 2018 will be the strongest year for global growth since 2011. • IMF says world will grow at 3.9% but UK at only 1.5% (down from previous estimate of 1.6%). • UK unemployment fell again in the three months to February to 1.42m or 4.2%. • Wage squeeze may be ending. UK average earnings rose by 2.8% in year to Feb. Inflation in year to Feb was 2.9%. • German business is becoming a little more pessimistic on the back of trade war worries. The German Macroeconomic Policy Institute comments ‘the danger of recession has increased markedly. It is a notably more critical picture than a month ago.’ • WTO warns threat of a Sino-US trade war is worrying global business leaders • Eurozone economic growth is said, by a poll of economists taken by Reuters, to be slowing. • Sterling off its highs at $1.4294 and €1.1547 • Oil up at $72.10 • UK 10yr gilt yield down 3bps at 1.43% • World markets: UK up yesterday with Europe & US also higher. Asia mostly up in Wednesday trade • Brexit: o Bloomberg reports ‘worse than Brexit is prolonged uncertainty.’ It suggests campaign for a second vote is ‘gaining traction’ PRIOR DAY LATER TWEETS: • Later tweets: Visa says UK consumer spending fell in March by 2.1% after 1% drop in February. Says pub & restaurant spending rose. Doesn’t feel that way • Whitbread shares up on split hopes. Maybe more upside two, three or four years ago? China less good, UK near capacity etc. • Resolution Foundation says c. third of millennials will never be able to afford to buy a house • Discounts: Miller & Carter now 20% off. Jamie’s 40% off, how’s that work for top-end casual dining price protection? • Forward air bookings to London down 3.5% in Q1. Fall of c10% projected in Q2. Not helpful for London hotels where capacity has risen • GNK giving a bit back today but 3-day rise in share price to yesterday puts it up c23% since Q4 update last Thursday • Sterling strongest since Brexit vote. UK 10yr gilt yield up a bit. Interest rate rise still likely next month • AA halves dividend after reappraisal of previous policy. Implications for any leisure stocks there? • Hammerson / Intu deal ‘on knife edge’. Property in denial? Must it do deals to cut costs, secure growth? Look at all the to-let signs… • Intu says has ‘strong Q1 with lettings at increased rents, high occupancy & footfall’. Micro good but big picture bad? Which will win out? START THE DAY WITH A SONG: Yesterday’s song was Wild Horse by the Rolling Stones. Today who sang the following: Here come old flat-top, he come grooving up slowly He got ju-ju eyeballs, he’s one holy roller He got hair down to his knees Got to be a joker, he just do what he please RETAIL NEWS WITH NICK BUBB: Intu Properties: As we noted yesterday, after the Sunday Times flagged that the Hammerson agreed bid for Intu Properties is on a knife-edge and that Hammerson may soon renegotiate the deal or walk away (in response to shareholder criticism of the deal), Intu brought forward its scheduled Q1 update to reassure investors that it is on track for its full-year rental income growth, but that news failed to impress the embattled Hammerson and it has announced this morning, embarrassingly, that it has withdrawn its recommendation to shareholders to approve the deal announced on Dec 6th and now thinks it will all too risky! It will be interesting to see what happens to the Intu share price today (it was already trading at c12% below the imputed value of the Hammerson offer)… Dignity: Talking of volte faces…Having warned previously that price competition would wipe out a big chunk of this year’s profits, the embattled funeral provider Dignity has come out with a Q1 update today to flag that Dignity’s Q1 revenue was c£95m compared to £93m a year ago and EBIT of £37.5 million was in line with the prior year, which was significantly ahead of the Board’s expectations! “The Board continues to believe that trading during 2018 will be volatile but based on the first quarter results believe that results for the full year will be ahead of current market expectations”. No doubt this news will reverse a big chunk of the massive slump in the share price that Dignity has suffered…
Waitrose Watch: Over at Waitrose, momentum slipped again last week, even though last week clearly suffered from the calendar hit and the comparison with Easter last year. Last week saw gross sales down by as much as 21.3% in w/e April 14th and the cumulative outcome for the last 11 weeks is now just +0.8% gross, which is broadly flat LFL.
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