Langton Capital – 2018-09-12 – Goals, Ten Ent, DP Eurasia, delivery costs, confidence…
Goals, Ten Ent, DP Eurasia, delivery costs, confidence…
A DAY IN THE LIFE:
The High Street may be having a hard time of it but, though there are some operators that make you feel entirely welcome, don’t you think that some retail outlets, restaurants, bars and the like make you feel like a fool for having walked through the door?
And that’s unforgivable, really.
You may not know an iPhone from an eye patch or a merlot from a marmot but there’s still no reason to make you feel stupid for having asked what in all honesty was a stupid question. And there’s no need to smirk when you blanche at being asked to pay £6.50 for a pint of lager or heaven knows what for a pair of shoes.
Anyway, market forces seem to be making themselves felt but here’s a thought. Be nice to your customers. Give them more than they expect. Smile a bit? On to the news:
60 SECONDS ON DP EURASIA, TURKEY, RUSSIA & ACCOUNTING FOR RISK:
Who wants free pizza?
• We heard about Domino’s viral Russian promotion promising customers free pizza in exchange for visible tattoos of the group’s logo.
• Unfortunately, we couldn’t get ours done in time as the promotion was called off early. We suppose this is a sign of the campaign’s success.
• The Russian division of Domino’s is run by Domino’s Pizza Eurasia (DPEU – Turkey, Russia, Georgia, Azerbaijan), whose half year results are out today.
• As the above campaign suggests, however, DPEU operates in very different markets to those of Domino’s Pizza Group (DOM).
Solid management, good operation, but still high risk…
• DPEU has an experienced management team that is respected by other master franchise management teams. Aslan Saranga and co. have navigated tough market conditions before.
• That said, macroeconomic developments in Turkey have pushed half year losses up from -TRY3.8m to -TRY10m.
• How do you quantify the heightened potential for geopolitical risk? At the start of the summer, DPEU shares were 220p and today, after a 5% rise, they are just 90p.
• It is hard to know if they were overvalued then or are undervalued now.
And accounting complexity does not help
• DPEU is a complicated company in terms of geography and currency.
• It operates in Turkey, Russia, Georgia and Azerbaijan, is headquartered in Amsterdam, and is listed in London. It must translate these currencies into sterling, adding layers of complexity to its accounts.
• Despite all this, we are reminded of the high regard in which its management is held by other operators and the potential of its markets.
• High risk they may be, but at these levels DPEU shares are starting to look interesting.
• Unfortunately, with Trump and Erdogan puffing their chests out, the company is at the mercy of two very oversized egos
PUBS & RESTAURANTS:
• Delivery companies charging more to small operators, more still to street food vendors. Deliveroo may be charging between 17% and 20% to large casual dining chains but the charge for smaller operators is in the 20s and, for street food vendors, which admittedly have fewer overheads, charges can be between 30% and 35%. These percentages appear to have been trending upwards over the recent past.
• NPD’s latest Foodservice GB survey has suggested that ‘despite the royal wedding in May, the World Cup kick-off in June and the hot summer weather, British consumer confidence remains negative.
• NPD says traffic was static in Q2 with spend up 3%, broadly in line with inflation. Quick Service Restaurants were up 1% whilst onsite dining fell by 2% in terms of traffic numbers.
• NPD reports that ‘major chains’ increased visit numbers by 4% in Q2 whilst independent operators saw visitors decline by 6%. Major chains drive 64% of all food visits. NPD says ‘the foodservice market has been facing tough external challenges – such as increased rent, staff shortages and the rising price of ingredients’.
• NPD concludes that ‘the smaller chains struggle most’.
• Commenting on the US top 500 restaurants, Technomic has said that ‘we’re seeing some major movement within the top 10 chain rankings based on our 2018 projections.’ Technomic says ‘several growth players that we’ve been watching over the past couple of years are starting to encroach upon chains that are struggling to overcome branding and operational challenges.’
• Technomic says that ‘after dipping to 3.0% in 2017, Technomic forecasts that cumulative sales growth for the Top 500 chains will increase modestly to 3.2% in 2018.’ It adds ‘the quick-service segment is forecasted to increase its sales this year, propelled by the impressive sales growth from Taco Bell, Chick-fil-A and Domino’s as well as another solid year from McDonald’s.’
• Technomic reports that US ‘growth for the fast-casual segment is forecasted to remain strong but the days of annual double-digit sales growth have likely concluded. Sales growth for full-service chains is expected to improve marginally in 2018 after having slowed to 0.9% in 2017.’
• The BBPA has welcomed Drinkaware’s new ‘Drink Free Days’ campaign but says there is still a place for moderate alcohol consumption and lower strength drinks.
• UKHospitality has warned the government that the hospitality industry requires a ‘comprehensive package of support’ at the Budget Statement to arrest the trend of increasing site closures shown in the latest CGA Market Growth Monitor. UKHospitality Chief Executive Kate Nicholls said: ‘The perfect storm of cost pressures presented by ever-increasing business rates and wage costs continues to batter the hospitality sector. Despite promises from the Government to reform business rates, pubs, restaurants and bars are still forced to operate within an unfair system that favours digital businesses above those at the heart of communities.’
• The National Trust plans to spend £20m a year for the next five years on improving its facilities, including its cafes and catering operations, in response to record-breaking visitor numbers.
• Almost three quarters of Scottish people believe locally distilled whisky is taxed at an unfair rate compared to European equivalents, according to a survey by the Scotch Whisky Association (SWA). Scottish whisky is currently taxed 76% higher than the EU average for spirits and the SWA is calling on the UK government to freeze tax rises on whisky at the next Autumn statement this November. Karen Betts, chief executive of the SWA, commented: ‘It is inconceivable France would hamstring its wine industry through heavy taxation. The evidence shows that a continued freeze would not only deliver greater revenue for the Treasury, but also help to support an industry that has invested more than £500m in capital projects over the last five years.’
• Shake Shack launches the Crispy Pickle Burger on 12 September costing £6.75 for a single and £10 for a double. The burger will be available for only two months.
• Shadow chancellor John McDonnell has pledged Labour will ‘restore the balance of power in the workplace’, promising more rights for people working in the gig economy.
• The vegan cheesemaker, Nutcrafter Creamery, is aiming for global expansion as the group moves to a bigger premise at Riverside Inverclyde’s Kelburn Business Park in Port Glasgow.
• Research has indicated that 77% of SMEs are as confident about the future as they were a year ago, while 89% say they are in a better financial position than last year.
• Chairman of JD Sports, Peter Cowgill has defended the high street shopping and athleisure retailer stating that the ‘theatre’ of bricks and mortar retailing cannot be rivalled online.
HOLIDAYS & LEISURE TRAVEL
• Tui is continuing to sell holidays to the Aqua Magic Hotel in Egypt, where two Brits died in unexplained circumstances last month. The holidays are not available to the UK market, but instead are being offered to customers in Germany, the Netherlands and Belgium, with Tui saying it will ‘monitor the situation’.
• Leaked CAA documents show that pilot licences will no longer be recognised by the EU if the UK drops out of the European air safety mechanism after Brexit, according to Sky News. Thousands of aviation licences, ratings and certificates would have to be reissued by the European Aviation Safety Agency (EASA), potentially costing millions.
• Gatwick passenger number growth slowed to 0.4% y-o-y this August to 4.9m, however, this was still Gatwick’s busiest ever August. Gatwick CEO Stewart Wingate said: ‘As we reach the end of Gatwick’s busiest summer to date, August’s traffic figures are extremely encouraging, particularly within our long-haul network’.
• Online travel giant eDreams ODIGEO has announced that it is seeking a €425m refinancing, after having revealed a 6% drop in y-o-y net profits to €5.7.
• Heathrow passenger numbers in August increased 2.6% on last year due to new flights to China. A total of 7.5m passengers traveled through Heathrow in August making it the airport’s second busiest on record.
• Goals Soccer Centres has reported interim numbers for the 6mths to 30 June saying it was hit by snow and rescheduling of games.
• Goals says ‘as announced previously in the trading update of 19 July 2018, Goals’ performance has been impacted by the snow in Q1 2018 and further impacted in Q2 2018 by the re-scheduling of amateur 11-a-side games to midweek time slots when players would normally be playing 5-a-side.’
• H1 sales were down to £16.2m from £17.4m with a loss before tax of £1.1m compared with a profit of £2.6m last year. Loss per share was 1.7p versus earnings last year of 2.7p.
• Goals says ‘H2 trading has started well and…are now positive.’ The company says ‘trading has normalised and has returned to its positive trend following the anticipated slowdown during the World Cup.’
• Goals concludes ‘we are therefore optimistic with respect to the trading outlook for the remainder of the year.’ CEO Andy Anson says ‘I am greatly encouraged by our performance in recent weeks which has seen the business fully recoup the financial effects of the extreme weather and moved us into positive like-for-like sales territory for the year to date.’ Goals’ shares, which peaked at nearly 240p in 2015, are currently trading below 70p.
• The family entertainment centre operator, Ten Entertainment Group has increased sales 7.7% to £37.8m in 2018 H1. The group were able to increase LfL sales by 3.1% and EBITDA by 4.8% to £9.8m, despite the unusually warm summer.
• Ten Chairman, Nick Basing commented: ‘Despite the extraordinary weather conditions in the period, I am delighted the business delivered solid like-for-like sales growth in the first half, and now remains in positive territory for the year to date. More importantly, the business continues to invest to strengthen its quality of earnings from the current estate and add high quality additions’.
• Hollywood Bowl Group has completed its seventh investment project of 2018 with a £250,000 rebrand and redevelopment of former the Bowlplex on Poole Road, Branksome.
• Las Vegas is still growing but has stated it is fearful of a downturn, STR has reported. Reuters told the STR: ‘Though construction cranes once again rise above casinos along the Strip, Las Vegas is trying to prepare for the next downturn—whenever that may be—by trying to wean itself off the reliance on housing and hospitality and turning to industries ranging from professional sports to medical care’.
FINANCE & ECONOMICS:
• The ONS has reported that wages grew faster than expected in the three months to July, rising 2.9%. This may reaffirm views that the economy is growing ahead of a sustainable rate (recently reduced due to structural issues) and lock in interest rises.
• Unemployment in the UK has continued to fall, dropping by 55,000 to 1.36m for the three months to July. The ONS says ‘with the number of people in work little changed, employment growth has weakened. However, the labour market remains robust, with the number of people working still at historically high levels, unemployment down on the year and a record number of vacancies.’
• Mark Carney is to stay at the Bank until January 2020.
• Sterling down a fraction at $1.3007 and €1.1225
• Oil up sharply at $79.31
• UK 10yr gilt yield up 3bps at 1.50%
• World markets: UK & Europe down yesterday with the US up. Far East down in Wednesday trade.
• Brexit etc.:
o Optimism that some sort of deal can be done rises. But some see the quality of the deal as worsening. Boris Johnson says the current UK Chequers’ proposal, likely to be chipped away by the EU, is worse than staying in the EU and aborting Article 50.
o Philip Hammond has said a deal can be done but that time is running out. He says there will not be time to agree detail. Brexit supporters suggest the £39bn divorce bill could be agreed but the UK may be ‘blind’ as to what this implies.
o Jacob Rees Mogg has said that he will vote against the Chequers’ proposal. He says this does not mean that Mrs May needs to resign
o JP Morgan has said that it would move at least 4k of its 16k UK staff to the continent in the event of no deal.
o The boss of Jaguar Land Rover in the UK has said that no-deal would potentially £60m per day if the delivery of parts could not be guaranteed. Jaguar boss Dr Ralf Speth has said ‘no one benefits from Brexit, hard or not.’
o Plane maker and Brexit supporter Britten-Norman is reported to be complaining about the handling of Brexit and is saying that it may have to move some of its functions to the continent.
o Labour MP Chuka Umunna has branded Brexit claims that free trade would boost the UK tax base by £80bn as Project Fantasy. Trade secretary Liam Fox has said not to get too carried away with the positives
PRIOR DAYS LATER TWEETS:
• Later tweets: Delivery, friend or foe? See Langton email. Costs more and nothing about food (temperature, consistency) improves over the journey
• Discounting getting worse. Or better if you’re a diner with Frankie & Benny’s offering 40% off mains, Pizza Express 2-4-1
• Market Growth Monitor from CGA & AlixPartners highlights ongoing pub closures. UKHospitality warns HMG needs to offer suport
• UK economy grows fastest in a year, UK unemployment confirmed at 40yr lows. Wages ex bonuses up 2.9%. Suggests interest rate rises to come?
• JD Sports LfL +3% achieved ‘against a backdrop of widely reported retail challenges in the UK’. Still demand for athleisure etc.
START THE DAY WITH A SONG:
Yesterday’s song was Bulletproof by La Roux. Today who sang:
Got a curse I cannot lift,
Shines when the sunset shifts
When the moon is round and full
Gotta bust that box, gotta gut that fish
RETAIL NEWS WITH NICK BUBB:
• Ted Baker: There was also an unusually timed announcement from Ted Baker yesterday, via the news at 9.30am that it has bought back its footwear licence (No Ordinary Shoes Ltd) from the privately owned Pentland Group (the majority shareholder in JD Sports) for up to £20m. It is unclear why Ted Baker feel the need now to bring this successful business back in house, but both sides seem happy with the move, with the great Ray Kelvin saying “I would like to thank Pentland for their hard work and Tedication over the last 17 years” and Richard Newcombe, the Global President of the Footwear Division at Pentland, saying “It’s been a pleasure to have partnered with the Ted Baker team for the last 17 years”.
• Yesterday’s Press and News (1): The big focus is on Debenhams in yesterday’s papers, after it rushed out a statement to reassure investors about its future and the headline in the Times sums up the general reaction: “Debenhams tries to talk its way out of trouble, but no one’s buying it”. The FT notes the view of industry body Revo that Debenhams is “a country mile” away from being qualified for a CVA and Lombard column in the FT (headlined “CV-eh?”) flags that Debenhams probably planted the CVA scare story in the weekend press to help it in its landlord negotiations. The Business editorial in the Guardian flags that selling Magasin in Denmark would create some breathing space in the short-term, but that a CVA must be a medium-term option and thunders that in the meantime “Debenhams needs to be both more transparent and faster in revealing what’s in store”.
• Yesterday’s Press and News (2): In other news, there is also plenty of coverage of yesterday’s Primark update (“Primark powers ahead as High Street struggles” is the Times headline), whilst the lead story in the market report in the Telegraph and the Times is the big fall in the share price of Dignity, after its main rival Co-op slashed the price of funerals. The market reports also note that Morrisons was upgraded by HSBC ahead of Thursday’s interims and Questor column in the Telegraph has a detailed look at Morrisons, saying that its tip is finally coming good and that investors should hold on for more. The Telegraph has a snippet about the Ted Baker footwear licence deal. Finally, the tabloid press is very excited about the news that TV celeb Holy Willoughby is to become a style ambassador to M&S…
• John Lewis Partnership: Ahead of the JLP interims on Thursday, there isn’t much debate about the outcome , after the profit warning at the end of June about the John Lewis H1 being likely to be “close to zero”, but it’s worth noting that July was a bad month because of the heatwave. So John Lewis will be lucky to scrape any profit in H1 (versus the £40m they made in H1 last year, pre-exceptionals), given an estimated 1.5% fall in LFL sales and an estimated 125bp fall in gross margins (given increased discounting). But John Lewis makes most of its profit in the second half, so the key focus will be on what the outlook statement is like. Much depends on the death throes of House of Fraser and Debenhams, as John Lewis is wedded to price matching their Sale promotions on brands, because of its “Never Knowingly Undersold” price promise, and the auguries are therefore not good in terms of