Langton Capital – 2018-05-04 – Intercon, M&C, DP Poland, sunshine, Deliveroo, costs etc.:
Intercon, M&C, DP Poland, sunshine, Deliveroo, costs etc.:
A DAY IN THE LIFE:
Watching various American TV dramas, documentaries and the like, don’t you think it’s remarkable just how many flags there are everywhere?
Is it genuine patriotism or is it a sense of insecurity or to combat some sort of goldfish memory problem, remind them just where they are at any moment in time?
I mean in Europe you may have the odd bank of flags outside an international hotel or an embassy but flying a flag in a school, having one in an office, a hospital, courtroom or whatever – or worse still having one in your garden – sends out mixed signals and is perhaps just a bit suspect overall.
Admittedly, nationalism has a bad name in Europe. A hundred million deaths over a couple of centuries will do that to you as there have been more Europe-wide civil wars (think Napoleon, WWI, WWII etc.) than there have been in many other areas, so maybe we’re a bit reticent when it comes to literally ‘flying the flag’, often right in the faces of the people who least want to see it.
Of course, Brexit may change all of that but maybe Occam’s razor is applicable once again, we may just have a better sense of geography. On to the news:
QUESTIONS, QUESTIONS (12): Is a bit of sunshine the answer to all our problems?
• Questions: When the sun shines, the tills sing; but can you extrapolate this forever? It was sunny mid-April & the first of May’s Bank Holidays will also feature good weather. This is helpful. The fact that a couple of weeks (and a payday) separate the two is beneficial. But, with GDP rising at 0.1% per quarter, unless Labour can take a bigger slice of the economic cake, real sales growth will not come easy. Conclusion: Punters suffer from wallet fatigue. They must fill up the car and pay the gas bill. A real 1% or so is ‘good’. All else is down to market share gains.
• Grab & Go operators have to pay rent, wages, business rates, utility charges, light and heat and the rest. They often then have to recoup all of this and more in a 90 minute window over lunchtime meaning that, if Deliveroo is going to offer varied lunches delivered to the desk every day at £4.99 per pop, they may have a problem.
• Of course, disruption is all about disrupting. And the disrupters do not have the cost structure etc. of the disruptees.
PUB, RESTAURANT & DRINK PRODUCERS:
• DP Poland has today updated on Q1 trading saying that it has been ‘’in line with management expectations’
• DPP has recorded a Q1 17% LfL growth in System Sales. It now has 56 stores in 24 towns and cities with 2 new stores opened in Q1
• DPP comments that it has ‘8 further leases already signed and a number of stores under construction’
• Re costs, DPP reports it is seeing ‘store margins improving as cost pressures ease’. CEO Peter Shaw comments ‘the first quarter of 2018 saw continued double digit like-for-like sales growth and improving margins at the store level. The buoyant Polish economy coupled with price deflation in the European cheese market have combined to provide healthy conditions for growth.’
• Cote Restaurants has reported numbers for the year to end-July 2017 to Companies’ House saying that it grew sales by 15.8% and EBITDA by 8.9% during the period under review.
• Cote reports LfL sales in its (now rather historic) year to July 2017 were up by 4.1%. It says ‘the directors are very pleased with the performance of the business’. It says ‘despite the challenging economic conditions facing our industry, Cote continues to outperform the market’.
• Cote reports in July 2017 that ‘the economic outlook remains uncertain’. The directors say ‘we are very mindful of the impact that a change in consumer confidence can have on our business’. Many operators say that conditions worsened in July and August last year.
• Cote reports revenues of £140.7m with an operating profit of £10.0m. The group has total equity of £57.3m.
• Sky reports that ‘a thousand more high street jobs are at risk as the womenswear group behind the Jacques Vert and Precis brands prepares to call in administrators less than a year after its last rescue deal.’
• Sky says that the group has been weakened by poor sales at House of Fraser and Debenhams where around 300 of its concessions operate.
• Sales at US operator Wingstop are off to a “strong start” for the year, the company reports. Q1 LfL sales are +9.5%
• Vine Acquisitions, backed by Patron Capital, has acquired the 54-strong Laine Pub Company for a sum in the region of £45m. Vine Acquisitions acquired Punch Taverns last August 2017 and currently owns c1,300 pubs across the UK.
• Abokado has raised £3m in new funding from ThinCats, to fund the group’s next phase of expansion.
• Fuller’s has bought four new bars from We Are Bar Group. Fuller’s Inns Managing Director Jonathon Swaine said: ‘We are delighted with this acquisition. The four bars are all in the heart of the City and are a great fit with our existing sites and strategy. We are very excited about these venues and to welcome the teams in the bars to the Fuller’s Family’.
• Yum! Brands has reported flat same-store sales in the first quarter 2018, with the group blaming the KFC chicken shortage in the UK. The supply failure left nearly 900 restaurants without their core product earlier this year.
• Young’s has finished the refurbishment of ‘Smiths’ in Smithfield. The pub will have a capacity of 800 spread over four floors with a year-round rooftop terrace.
• Amazon has made an offer for 60% of Indian e-commerce company Flipkart, competing with walmart to secure the company.
• Games Workshop reports sales and profits for 2017/18 are slightly above expectations as its good growth trends have continued to the end of April.
• Molson Coors reports Q1 net income up 33% to $278.1m from sales of $2.33bn. The company praised underlying growth in Europe and attributed the increase in net income to its acquisition of Miller International.
• Shipyard Brewing is planning a $65m ‘Brewtel’ with 105-rooms in Portland. Guests will be able to order a keg via room service.
HOLIDAYS & LEISURE TRAVEL:
• IHG reports Q1 numbers saying global REVPAR rose by 3.5%. The group signed 20k rooms in Q1 and has made ‘good progress against [its] new strategic growth initiatives’.
• IHG CEO Keith Barr comments ‘in Q1 we delivered RevPAR growth of 3.5%, net system size growth of 4.3% and our best signings pace for eleven years. This strong performance reflects our focus on driving industry leading net rooms growth over the medium term, underpinned by our new strategic initiatives.’
• Mr Barr continues ‘we have made excellent progress against our initiative to expand our footprint in the $60 billion luxury segment, announcing the acquisition of a 51% stake in Regent Hotels & Resorts in March.’ The group CEO concludes ‘the fundamentals for our industry remain strong, we have the right strategy, and we are confident in the outlook for the year ahead.’
• Intercontinental Hotels yesterday reorted that it had entered into a conditional agreement with Foncière des Régions to rebrand and operate 12 high quality open hotels (2.2k rooms) and one pipeline hotel (185 rooms) into its portfolio across the UK. It says ‘this deal will establish IHG as the leading luxury hotel operator in the UK, taking it to more than 2k rooms in this valuable, fast growing segment.’
• IHG’s CEO Keith Barr says ‘we are focused on continuing to expand our leadership in luxury and upscale, which are both high-value segments with significant growth potential.’
• On the Beach data reveals England football fans are not keen on travelling to the Russian World Cup this summer. The most significant surge in searches is for departures on the June 30, two days after the final group game – which are up 39% up in comparison to the date of England’s opening match against Tunisia.
• InterContinental Hotels plans to expand its luxury estate in the UK and is set to rebrand 12 Foncière des Régions as well as one pipeline hotel. This deal will establish IHG as the leading luxury hotel operator in the UK.
• Hyatt Hotels has raised its guidance following the announcement of strong Q1 results. The group reported RevPAR up 4.3% year-on-year, guidance for full year RevPAR has now been increased to 3.5% from 2%.
• Starwood Capital Group, the global private investment firm, has announced that it will sell 14 UK hotels that form part of The Principal Hotel Company to Fonciere des Regions. Cody Bradshaw, Managing Director and Head of European Hotels for Starwood Capital Group said: ‘This landmark transaction represents a major milestone in our remarkable journey with The Principal Hotel Company. Five years ago, we embarked on an investment strategy aimed at consolidating more than 50 hotels across four different U.K. hotel companies to form a leading platform’.
• STR data has shown that occupancy in the US hotel industry for the week 22-28 April was down 0.6% to 69.8%, ADR climbed 2.3% to $130.40 and RevPAR was up 1.7% to $91.05.
• A ‘stellar’ wave peak booking period helped drive first quarter profits at Norwegian Cruise Line Holdings up to almost $138m compared with $91.2m in the same period a year ago. President and chief executive Frank Del Rio said: ‘The year is off to an impressive start with yet another record quarter of earnings, which exceeded expectations.’
• Ireland’s largest hotel group Dalata says that trading in the first four months of the year has been ‘a little ahead’ of expectations.
• Global passenger demand grew by 9.5% in March year-on-year although rising cost inputs, in particular fuel, suggest that ‘any demand boosts from lower fares will moderate going into the second quarter.
• Millennium Copthorne reports hotel revenue decreased by 2.1% to £187m (Q1 2017: £191m). Exchange loss arising from the stronger pound was £11m and this reduced the Group’s reported hotel revenue. Group RevPAR for the first quarter of 2018 fell by 3.1% to £68.48 (Q1 2017: £70.66). In constant currency, RevPAR increased by 3.2%.
• Spotify shares fell 9% after its first earnings report as a public company failed to match investors’ expectations. The Swedish firm continues to lose money, although Q1 losses narrowed to €41m from €139m a year earlier. Spotify chief executive and co-founder Daniel Ek also moved to allay fears over competition, saying Spotify has seen no ‘meaningful impact’ from the likes of Tidal, adding ‘When we look at this, we don’t really think that this is a winner-take-all market. In fact, we think multiple services will exist in the market and we are all in a growing market.’
• Twitter has told its 330m users to change their passwords after a glitch exposed some exposed some in plain text on its internal network.
FINANCE & MARKETS:
• The UK Services PMI for April rose to 52.8 from 51.7 in a ‘Beast from the East’ impacted March. The number was below estimates of around 53.5 and makes a rate rise next week that little bit less likely.
• Markit says economy has ‘continued to deteriorate’.
• Markit reports its ‘services survey adds to signs that the rate of economic growth remained disappointingly subdued at the start of the second quarter.’ It says ‘the three PMI surveys collectively showed only a muted rebound in business activity after being disrupted by heavy snowfall in March, failing to regain February’s pace of growth to suggest that the underlying performance of the economy has continued to deteriorate.’
• The National Institute of Economic & Social Research says ‘we have revised lower our GDP forecast for 2018 to just under 1.5%’
• The NIESR says this is on the back of a weak performance in Q1. It says it does not believe interest rates will increase until August
• NIESR’s downgraded estimates are based on a ‘soft’ Brexit ‘where the UK achieves close to full access to the EU market.’ It says that the risks of this not happening are now increasing.
• Sterling down at $1.3582 and €1.1326
• Oil up at $73.61
• UK 10yr gilt yield down on low-growth concerns to 1.40% (down 6bps)
• World markets: UK & Europe lower yesterday with US also down. Far East lower in Friday trade.
• Politics & Brexit:
o Local Council elections generate mixed results with both the Tories & Labour giving ground
o Bloomberg says Theresa May could only have a week to salvage her premiership after her inner cabinet ‘shot down her plan for the U.K.’s future relationship with the EU.’
o Brexiters claiming victory as cabinet fails to agree on trade stance.
o Bloomberg says choice is ‘between staying in the existing EU customs union or leaving the bloc without a deal.’
o Times suggests Mrs May should call the Brexiters’ bluff & dare them to bring down her government
o Customs’ Partnership arguably looks like a complicated, worse version of what we have got already.
PRIOR DAY LATER TWEETS:
• Later tweets: Weather set to be good over the Weekend. Will certainly help. Customers have been paid since the last sunshine. Get the money while it’s there!
• Deliveroo meal deal offering £4.99 lunch in London incl. delivery. Hard for grab-n-go to compete given rent, rates, wages etc.
• MCA says found promo. activity (vouchers etc.) at branded restaurants up 75% in last 5yrs. Just now Prezzo 2-4-1, Beefeater 33% off etc.
• Eurozone growth slowed to 0.4% in Q1. Not brilliant, same Beast from East as UK but materially better than the 0.1% recorded here
• Yesterday’s super-secret cabinet meeting from which there should be no leaks failed to agree on customs union membership
• H of Fraser wants to have ‘the right portfolio of stores that are the right size and in the right location’. Would that it were that easy…
• UK services PMI above Mar but below expectations at 52.8. (Mar 51.7, expectations for Apr 53.5). Leaves 10 May rate decision finely balanced
• Markit says ‘economic growth remained disappointingly subdued at the start of the second quarter.’
• UK manufacturing soft but construction PMI a beat. Service PMI mildly disappointing. Rate rise on 10th in the balance
• US Fed leaves rates unchanged. Baton passed to UK. Rate move next week looking less rather than more likely.
START THE DAY WITH A SONG:
Yesterday’s song was Electric Relaxation by A Tribe Called Quest. But today who sang the following:
‘I was bruised and battered, I couldn’t tell what I felt.
I was unrecognizable to myself.
Saw my reflection in a window and didn’t know my own face.
Oh brother are you gonna leave me wastin’ away’
RETAIL NEWS WITH NICK BUBB:
• Games Workshop: After its amazing run over the last year, Games Workshop is now capitalised at as much as £770m (slightly bigger than both Halfords and Pets at Home), but if you’d been thinking of shorting it, given the tough comps, then you’d better think again, because the company has come out with another bullish trading update today. No figures are provided, but the message is that since the last update on 5 February, with a month to go of the financial year, “the good growth trends have continued to the end of April. Sales and, given the high operational gearing of the business, profits for 2017/18 to date are therefore slightly above expectations”.
• House of Fraser CVA Watch: As we noted yesterday, it is widely believed that the increasingly beleaguered House of Fraser wants to dump the worst 20 of its 59 department stores, via the controversial CVA process, but it has not named the stores at this stage. Well, we spent a bit of time looking through the store list and found it pretty easy to come up with a list of 22 stores in secondary towns that could be for the chop: Altrincham, Bath, Birkenhead, Camberley, Carlisle, Cheltenham, Chichester, Cirencester, Darlington, Grimsby, Huddersfield, Hull, Lincoln, Middlesbrough, Plymouth, Richmond, Skipton, Solihull, Sutton Coldfield, Wolverhampton and Worcester. Allowing for the fact that HoF apparently wants to merely downsize big stores like Plymouth and Wolverhampton, we suspect that list is pretty close to the “underperforming legacy stores” that HoF would like to close, in an ideal
• BDO High Street Sales Tracker: We flagged on Wednesday that John Lewis was hit last week by the earlier fall of the May Day Bank Holiday a year ago, but today’s BDO High Street Sales Tracker for small/medium-sized Non-Food chains for last week, w/e Sunday April 29th, again makes better reading. BDO Fashion Store LFL sales were up by 2.0%, although, including Homewares and Lifestyle chains, total Store LFL sales were only 0.5% up. And overall Online sales were up by 18.9%, with Online Fashion sales nearly 27% up.
• News Flow Next Week: After the Bank Holiday weekend, a busy week kicks off with the BRC-KPMG Retail Sales for April first thing on Tuesday. Wednesday brings the Greggs AGM update and the Vertu Motors finals. Then on Thursday we get the much-awaited Next Q1 update, the Morrisons Q1 update and the Superdry Q1 update, as well as the MPC meeting/Bank of England Inflation Report.