Langton Capital – 2018-07-05 – Trade overview, C&C, W Cup ‘billions’, High Street & other:
Trade overview, C&C, W Cup ‘billions’, High Street & other:
A DAY IN THE LIFE:
Bit busy today, on to the news:
BDO SUMMER REPORT – BARS & RESTAURANTS:
• BDO reports consumer confidence still negative & says ‘British consumers remain cautious about the general state of the economy.’
• It says ‘the negative outlook on consumer confidence contrasts with the positive performance of restaurant and bars during the first quarter to the year, with a total sales growth of 3.8% in March and 4.5% in May.
• These reflect new-build numbers as well as any movement in LfL sales.
• BDO says ‘it’s not all doom and gloom however.’ It says there is growth in the wet-led trade.
• BDO says ‘trading conditions remain positive for restaurants and bars across the UK.’ It says ‘hot weather in may helped boost trade across the UK for pubs.’ Langton has pointed to both the underlying trend (mildly positive) and the WWW (Wedding, Weather and World Cup).
• BDO quotes Peach Business Tracker numbers showing that ‘managed pubs saw an overall like-for-like sales increase of 3.5% whilst casual dining brands experienced a decrease of 2.1%.’
• BDO says ‘we predict a bumper summer for British pubs, particularly if England make it into the final stages of the competition.’ Further progression in the World Cup will doubtless be good for trade but it will not, in an output sense, create wealth. If customers are not working more hours, but are simply spending money down the pub, then there will be less money to spend elsewhere. Or the customer will have to borrow more – but good luck using World Cup beer drinking as a reason for increasing your overdraft.
• Re corporate activity, BDO says ‘the last 12 months has seen pubs and wet-led concepts playing a more prominent role in sector M&A following a numbers of years playing second fiddle to casual dining brands.’
• BDO says that ‘differentiated offers’ should perform well.
• The accountants point to themes including ‘the return of the local’. ‘premiumisation’. ‘authenticity and provenance’ and ‘experiential propositions’ as driving trade.
• Accommodation provides an opportunity for pub groups to ‘sweat their assets’.
• Regarding the future, BDO suggests that ‘high quality pub businesses are always in demand.’ It suggests that corporate activity could pick up further.
• BDO says ‘we expect well-capitalised groups such as City Pub Co, Vine Acquisitions backed by Patron and Stonegate backed by TDR to continue actively looking to acquire in the space to deliver growth for their investors.’ The accountants conclude ‘well-known groups such as ETM, Drake & Morgan, NWTC, Alchemist, Brewhouse & Kitchen are all likely to be receiving regular knocks on the door.’
PUB, RESTAURANT & DRINK PRODUCERS:
• C&C is to update on trading at its AGM saying ‘trading has been positive across all our key markets, helped by good weather and the World Cup. In Scotland, since the introduction of Minimum Unit Pricing on 1 May, consumer reaction has been broadly in line with our expectations. In Ireland, good early summer weather has helped Bulmers return to moderate volume growth in the year-to-date.’
• C&C says ‘we continue to make progress in improving service levels and operational performance at Matthew Clark Bibendum. Our new, experienced senior management team are all now in post and engaged in stabilising the business.’
• Brewhouse & Kitchen has reported numbers to end-Sept 2017 to Companies’ House showing revenues up from £8.8m to £11.6m. The group reports a PBT of £575k vs a loss of £772k last year.
• Brewhouse reports ‘we are continuing to evaluate sites for acquisition where they fit our key criteria and raised £8.8m in new equity post year end for the purpose of further development of the estate.’
• The pub sector is set to return to positive outlet growth within the next five years, the MCA has report. The MCA’s Pub Market Report has found that the resurgence of the wet-led model is helping to reverse fortunes for the sector.
• MCA’s Pub Market Report shows growth in pub sector turnover this year should grow more rapidly than the wider eating-out market for the first time since 2008. MCA says the market is forecast to reach a value of £22.5bn this year, up 1.6%. The total eating out market is expected to grow by 1.5%. Capacity increases in the Peach Tracker have been running at around 3%. Although there will be market share wins (and losses), this suggests there may be a fall in LfL sales overall this year.
• Centre for Retail Research (CRR) suggests that it could be ‘worth billions’ to the UK economy if England makes it to the World Cup final.
• First, not to travel agents, restaurants and the like it wouldn’t. And second, there’s more than one way to measure GDP. The output method is based on what the economy makes and does and the spending method is based on what consumers, business & government spends. Over time, they must be the same. In the short run, borrowing (or de-gearing in the other direction) can mean that one number is different from the other.
• It is the ‘spending’ measure that will be influenced by the World Cup (or by the weather, Wedding etc.). Output is influenced by technological change, investment and hours worked. There is less signs of an upward move here.
• CRR says the UK economy has ‘benefitted’ from £1bn of extra spending this year. It could rise to £2.7bn if England makes it to the finals.
• By way of context, tour operators and others (such as DIY companies etc.) should see a boost to spending if / when England is knocked out.
• Beyond Burger, the meat alternative burger, is to launch across the UK in Tesco’s next month.
• Iceland has introduced paper bags in order to reduce plastic waste.
• Lavazza has acquired the Australian cafe chain, Blue Pod Coffee.
• BBPA chief executive, Brigid Simmonds, welcomed the return of the Great British High Streets Competition for 2018, saying ‘The high street is an important part of any town or city in the UK and the Great British high streets competition is a fantastic way to celebrate this…However, with consumer spending on the high street down, and many choosing to do their shopping online instead, pubs and the wider hospitality industry are more important to the prosperity of our high streets than ever before. Currently pubs shoulder an unfair business rates burden and they need support from the Government.’
• Nisbets reports turnover up 18% to £380.3m last year, extending its position as the UK’s largest supplier of catering equipment. Profit during the year to December 31 was up 4% to £35.7m.
• Various commentators suggesting that Sainsbury’s small LfL growth in sales in Q1 was largely down to price cutting. Others pointing to Topps Tiles’ LfL falls as a sign that large-ticket spending remains under pressure.
• Burger King Spain acquires its largest regional franchisee, Megafood, from GED Capital for €100m, in a deal which will see the new group generate annual revenues of around €500m.
• Indie Brands has been appointed the UK partner for Freya, a craft-made Birch spirit created by Pure Wild Spirits.
• Brigid Simmonds, chief executive of BBPA, responded to increasing prices of copyright songs by saying ‘The consultation proposes a possible 480% increase – from 3.8p per person per hour to 22p per person per hour. This would be on top of proposed structural changes that could more than double this figure, will simply not be viable for many licensees at a time when pubs are already facing major cost pressures in terms of increasing taxes and other regulatory costs.’
• UKHospitality warns that any increases to PPL’s SFE tariff will place considerable burdens on venues and limit their ability to offer recorded music. Chief executive Kate Nicholls said ‘It is clear that if PPL’s current thinking were to be implemented it would result in massive increases in licence fees, inevitably leading to higher prices for customers and significantly reducing the ability of establishments across the UK to play recorded music’.
• Delhaize, a Belgian supermarket chain, has launched the ‘Urban Farm’ project which will see the retailer grow food on the roofs of its stores and sell the produce to customers.
• The administrators for Jacques Vert say no viable offers for the sale of the group have been received with the resulting wind-down set to lead to 500 redundancies in the UK.
• London mayor Sadiq Khan has banned Westminster council from using Transport for London funds after the local council scrapped plans to pedestrianise Oxford Street. Deputy mayor Heidi Alexander called the local council ‘hugely selfish’ and said its decision was ‘devastating and disappointing’.
HOLIDAYS & LEISURE TRAVEL:
• GfK research shows a slump in booking trends for this summer as the UK experiences a heatwave and as England progress through the World Cup. The decline in bookings was most notably felt on high street travel agents. GfK senior client insight director David Hope said ‘The second England match on the Sunday lunchtime had the biggest impact, with direct bookings -9% and shop bookings -31%’.
• Second Estates reports holiday letting hotspots in Wales have seen the largest price increases in the UK over the last year. The Forest of Dean has seen prices increase by 7% over the past year up to £351,315, on average, whilst homes in the Brecon Beacons increased in value by 6% to £233,965.
• PM (of all people) has suggested that Govia Thameslink Railway could be stripped of its franchise if its services do not improve
• Gym Group has confirmed that its acquisition of 13 gyms from EasyGym has completed.
FINANCE & MARKETS:
• UK services PMI stronger than expected at 55.1 vs 54.0 in May. Expectations had been for no change.
• HIS Markit reports UK GDP rose by 0.4% in the 3mths to June vs 0.2% in Q1.
• Markit says ‘the sharp rise in business costs, linked to surging oil prices and the need to offer higher wages, suggests inflation will also pick up again from its current rate of 2.4%.’
• Interest rate rises that little bit more likely.
• EY Item Club says ‘the improved services survey completes an overall stronger set of purchasing managers’ surveys pointing to the economy warming up in June.’
• The head of the World Trade Organisation has said that protectionism ‘will hit global economy’
• Sterling up on interest rate rise hope (fears) at $1.3223 and €1.1343
• Oil down at $77.70
• UK 10yr gilt yield up 2bps at 1.28%
• World markets: All down yesterday & Far East lower today.
• Brexit etc.:
o Chequers tomorrow. FT says “the softest Brexit possible” will be hard for Conservative Brexiters to accept. Most of the ‘downside’ of membership will remain and UK will have no vote. Irish border would still work, though, and our (made in France) passports will be blue. But they could have been anyway.
o Peston blog suggests UK effectively collecting tariffs for EU & staying in Customs’ Union. EU citizens still to have right to come to UK. Very few curbs on free movement.
o Vote Leave has said the Electoral Commission has found against it re breaching spending limits.
o Jaguar Land Rover has said that 40,000 jobs are at risk without “greater certainty” on Brexit. JLR exports 80% of its cars. Last year it paid £2bn in tax to Treasury coffers.
START THE DAY WITH A SONG:
Yesterday’s song was Breezeblocks by Alt-J. Today, who sang:
What is it good for,
Say it, say it, say it
PRIOR DAY TWEETS:
• Later tweets: Prestige says food inflation is highest level so far this year. It ‘will not be welcome news for operators’
• Stonegate pubs charging up to 50p more per pint during England matches. Co points to extra cleaning, security & breakage costs
• Grimsey Review says city centres need to be re-fashioned to remain relevant. Problem spotting is one thing, problem solving another
• Oh, where’s Jeremy Corbyn [stand on Brexit}. Labour leader resolutely avoiding open goal of 2nd referendum promise that’d propel him to No10…
• Philip Hammond says is ‘urgent’ Cabinet agree a Brexit strategy. Any one will do? Third choice customs proposal debated at Chequers Friday
• SBRY Q1 up 0.2% LfL. Since Waitrose last week (heatwave) sales were +7.7%, SBRY possible down ex the weather?
• Big ticket spend still under pressure. Topps Tiles down 2.3% LfL. Says ‘…trading environment remained challenging…’
RETAIL NEWS WITH NICK BUBB:
Superdry: Ahead of today’s finals the Superdry share price has been performing badly (it slumped 43% in H1), as result of concern about weak Retail trading and the departure of the founder Julian Dunkerton. But you have to work hard to find a bearish note in the excessively lengthy and upbeat results statement, which tries to restore confidence by highlighting that the strong growth in Wholesaling and Ecommerce helped the group to eke out a 12% increase in underlying PBT in y/e April to £97m and by the announcement of a 25p special dividend.
ABF (Primark) update: in the 16 weeks to June 23rd the core UK business saw LFL sales growth, despite strong comps, but a a lower level than the 3% seen in the first half