Langton Capital – 2018-06-26 – Mini-bonds, heatwave, calories, Gaucho, C Wells & other:
Delivery, Carnival, Loungers, strikes, trade & other:
A DAY IN THE LIFE:
With the sun shining, the football on in the background and Wimbledon about to start, it’s hard to escape the fact that, despite me believing that we’ve only just put the Christmas decorations away, we’re very nearly half way through the year.
And where did the time go?
Only ten minutes ago we were ‘looking forward’ to MIFIDII, the World Cup and the rest and now they’re upon us meaning that, from time to time, I’d like to be able to stop the world and get off for a bit.
But, sadly, that’s not going to happen so, having managed to cram all my junk back into the garage and call what was clearly a disastrous housekeeping project a success, I have to remain engaged. On to the news:
DELIVERY AND THE WORLD CUP:
Every-day delivery is here
• The Telegraph writes that takeaway food could become cheaper than home cooking by 2030
• Deliveroo believes customers will be ordering from their platforms at least once a day in future and the Domino’s Pizza model continues to prosper across numerous markets
• The World Cup is unavoidable right now — might this event inject more momentum into an already thriving market?
World Cup winners and losers…
• Unfortunately for Domino’s Pizza Poland, the white and reds are limping out of the World Cup at the group stage
• DP Eurasia, however, could be seeing a boost to trade both as a result of Russia playing host to the competition and its national team’s surprise success
• UK pub companies should also be benefitting from the tournament, while restaurants will likely be suffering
• These effects are, or course, transitory and one year’s poor performance numbers are next year’s beatable comps
Sustainable trends versus temporary boosts
• We would argue that the structural shift towards delivery is the former, while the World Cup is the latter
• Delivery can be a low-margin, capital-intensive game. Somewhere along the line, higher-margin products have to be introduced into the mix
• This explains the relatively high prices for a Domino’s Pizza (excluding deals) and Deliveroo’s early steps into operating its own delivery-only restaurants
PUB, RESTAURANT & DRINK PRODUCERS:
• The Society of Independent Brewers (SIBA) have placed Ian Fozard of Rooster’s Brewery as the organisations new National Chairman. Ian Fozard stated: ‘I am delighted to be elected Chairman of SIBA by my Board colleagues and am proud to have the trust of SIBA brewers from across the UK behind me. I hope to help guide SIBA and its members towards a successful, vibrant future for British independent craft beer at a time when there are threats and challenges coming from various directions’.
• Loungers has announced that it is set to reach 140 sites by the end of the year, with the group having opened 12 sites already in 2018.
• Victors restaurant is to open its third site in Alderley Edge. Victors is part of the East Coast Concepts Group. CEO of East Coast Concepts, James Hitchens stated: ‘We have been looking for the perfect site in Alderley Edge for some time, and can’t wait to bring Victors to the area. Alderley Edge is a natural step for us, we believe the brand will both be a great fit for the area and prove to be a worthy addition to the vibrant food and beverage offer in the village’.
• New catering industry analysis, titled ‘The Business Case for Reducing Food Loss and Waste: Catering’, suggests for every $1 (75p) that caterers invest in programmes to curb food waste, they save more than $6 (£4.50) on average in operating costs. The study was produced by Champions 12.3, a coalition of nearly 40 leaders across government, business and civil society dedicated to halving per capita global food waste by 2030.
• Bird & Blend Tea Co. has grown ite revenue to over £2m having originally been launched from Kristina Smith and Mike Turner’s bedroom in 2012.
• Beer orders placed on Chinese food delivery app Meituan have surged during the World Cup.
• More than 100 MPs have backed an Early Day Motion calling on the government to ‘reduce the tax burden on pubs’, according to CAMRA. Toby Perkins MP, who sits as the Chair of the All Party Group on Pubs, said: ‘There is concern that the overall burden of tax on our pubs is excessive and MP’s across the house will continue to make the case to do more to support this crucial sector.’
• Tesco has abandoned its brand guarantee scheme formed in 2015 that was introduced as part of the price war between British grocers. The food retailer said fewer than one in eight transactions now got any refund at all, and instead it would focus on the broader strategy of low prices that helped the retailer deliver its “strongest quarterly performance since 2011” earlier this month.
• Asda has treated suppliers worse than any other UK supermarket chain, according to the Grocery Code Adjudicator. It was the second year running that Asda recorded the worst score out of the so-called Big Four after 11% of suppliers said the supermarket ‘rarely’ complied with the code in 2017.
• ezCater, an online ordering platform, closes $100m Series D funding, led by Wellington Management Company.
• In an effort to cut plastic usage Morrison’s will sell fresh produce in paper bags, resulting in 150m fewer plastic bags used each year. The UK has a target to ban “avoidable” waste by 2042.
HOLIDAYS & LEISURE TRAVEL:
• Carnival Corp shares fell sharply yesterday as the group’s Q2 numbers beat expectations but forward guidance was reduced.
• Carnival reported Q2 U.S. GAAP net income of $561 million, or $0.78 diluted EPS vs $379 million, or $0.52 EPS last year
• Carnival CEO Arnold Donald commented ‘we delivered another strong quarter, again achieving record adjusted earnings on record revenues and exceeding the high end of our guidance range. Strong operational execution drove a 30 percent increase in adjusted earnings affirming the strength of our core strategy to create demand that outpaces measured capacity growth through outstanding guest experience efforts coupled with innovative actions to increase consideration for cruising across all global markets.’
• Re guidance, the co said ‘at this time, cumulative advanced bookings for the next three quarters are in line with the prior year at higher prices. Since March, booking volumes for the next three quarters have been running slightly ahead of prior year at prices that are in line with the prior year.’
• CEO Arnold Donald added ‘we remain on track to deliver double digit return on invested capital in 2018.’
• Re the future, the co said ‘changes in fuel prices (including realized derivatives) and currency exchange rates are expected to decrease earnings by $0.06 per share compared to the prior year. Based on the above factors, the company expects adjusted earnings per share for the third quarter 2018 to be in the range of $2.25 to $2.29 versus 2017 adjusted earnings per share of $2.29.’
• Strikes by French air traffic controllers led to more than 300 flights covering the country being cancelled.
• MPs have backed plans to build a third Heathrow runway by 415 votes to 119. Opponent Boris Johnson not there to vote.
FINANCE & MARKETS:
• China has told France that it will buy more farm products from the EU as it shifts its buying away from the US.
• Harley Davidson has said that it will move some production out of the US in order to avoid duties levied by China and the EU on US products. President Trump has tweeted that he is surprised by this move and thinks that Harley Davidson is ‘the first to wave the White Flag.’ Harley said ‘to address the substantial cost of this tariff burden long-term, Harley-Davidson will be implementing a plan to shift production of motorcycles for EU destinations from the US to its international facilities to avoid the tariff burden. Harley-Davidson expects ramping-up production in international plants will require incremental investment and could take at least nine to 18 months to be fully complete.’
• Markets down yesterday on trade war fears.
• Sterling up vs dollar at $1.3287 but down vs Euro at €1.1342
• Oil up at $74.85
• UK 10yr gilt yield down 3bps at 1.29%
• World markets: UK, Europe & US down yesterday but Asia slightly higher in Tuesday trade.
• Brexit, politics etc.:
o EU says banks should speed up their preparations for Brexit. Banks have been warned that, whilst one is to be hoped for, they should not rely on there being a transition period.
o Business telling Mrs May to provide them with some certainty. Airbus warning said to be a ‘watershed’. Health secretary Jeremy Hunt says business should remain silent. Boris Johnson is reported to have said ‘f— business’. Business Secretary Greg Clark has said that business is ‘entitled to be listened to with respect.’
o FT accuses Jeremy Hunt of ‘trying to deepen his credentials as a Brexiter’. Mr Hunt campaigned to remain in the EU in 2016.
PRIOR DAY TWEETS:
• Later tweets: Mini-bonds: Plugging a gap or mis-selling? Equity risk with only a bond return…
• Heatwave on the way per Met Office. It’s certainly heating up. Not good for restaurants, wet-led pubs still benefiting
START THE DAY WITH A SONG:
Yesterday’s song was Strong by London Grammar. Today, who sang:
Satan is an evilous man,
But him can’t chocks it on I man
RETAIL NEWS WITH NICK BUBB:
Carpetright: Today’s Carpetright finals have been well flagged during the recent restructuring and refinancing process and the plunge into an underlying loss before tax of £8.7m (vs a FY 2017 profit of £14.4m) is in-line with previous guidance. But Carpetright have survived and CEO Wilf Walsh’s sobering review of the situation is well-written and vaguely uplifting. However, the outlook and current trading statement is very cautious (“trading in the first eight weeks of the new financial year was heavily impacted by the disruption arising from the Group’s restructuring activity, in particular stock shortages as some suppliers had withdrawn supply, and the period of exceptionally warm weather”), even though there are no figures, so nobody is likely to rush out and buy the shares ahead of the 9am analysts meeting in the City…
Footasylum: Having flagged yesterday the conspicuous failure of the Directors of the recently floated Footasylum to take advantage of the brutal reaction in the City to last Tuesday’s profit warning and buy some shares in the market, to show some support for the company…we were amazed to read in the “City Spy” column in the Evening Standard last night that the youthful CEO Clare Nesbitt is about to go off on maternity leave. That happy personal event may explain why the JD Sports veteran Barry Bown was recently roped in as the new Executive Chairman, but it does not exactly inspire confidence that the management of the business have had their minds on the job at such a difficult time for the company, which may be why the shares fell even further yesterday, to a new low of 74p…
News Flow This Week: The latest Kantar/Nielsen grocery sales figures (for the 4/12 weeks to June 16th) are out at 8am today. Tomorrow brings the John Lewis Partnership Strategy update (and an analysts meeting at Westfield White City at the unhelpfully early time of 8am…). We then get the JD Sports AGM update on Thursday. And, with the end of the month coming up quickly now, the CBI Distributive Trades survey for “June” is out this morning and the monthly GFK Consumer Confidence index is out first thing on Friday.