Langton Capital – 2018-09-24 – Thomas Cook warns, Easyhotel expands, Gfinity & other:
Thomas Cook warns, Easyhotel expands, Gfinity & other:
A DAY IN THE LIFE:
Cold (4 degrees as we write) but bright and autumnal weather over the weekend.
Not the same everywhere we hear but don’t you find it intriguing that some are suggesting the current chapter of the unfolding Brexit debacle is a planned re-boot so that we can negotiate from a stronger position?
Because, more often than not, if something looks like an uncoordinated car crash, and it sounds and smells like an uncoordinated car crash, then it probably is one.
Anyway, that’s rather a divisive issue at present so we’d better keep clear of it but, if you can show me two Brexiters – even those in current PM Mrs May’s Cabinet – who agree on just what Brexit means, I’d be surprised. On to the news:
PUBS & RESTAURANTS:
• Unions continue push into F&B operators including McDonald’s, JD Wetherspoon, TGI Friday & others. Activity at Uber into the bargain as low unemployment & threatened fall in EU workforce in UK strengthen’s labour’s hand. Unions say they are acting against unfair employer practices, low wages and in some cases the misuse of tips.
• Whitbread has announced shareholder meet on 10 October to approve Costa sale to Coca Cola. Whitbread says ‘in addition to the passing of the required resolution at the General Meeting, completion of the Transaction is conditional on competition clearance from the antitrust authorities in the EU and China. The Transaction is expected to complete during the first half of 2019.’
• The BBPA has rejected the Alcohol Health Alliance’s claims that multinational alcohol companies are ‘keeping consumers in the dark’ when it comes to displaying important health information on their products. The BBPA stated: ‘The report from the Alcohol Health Alliance quite wrongly suggests that only 47% of labels adhered to the industry’s own best practice. All alcohol categories met the 80% pledge and UK brewers exceeded the target with a compliance rate of 86.5% in terms of total alcohol’.
• The commercial director of Tossed commented that the group has seen ‘massive benefits’ from its decision to go cashless.
• The chief executive of the Wine and Spirit Trade Association has expressed his frustration at the progress made over Brexit at this year’s WSTA Annual Conference, stating: ‘The WSTA has long been holding seminars and meeting members to talk through what the consequences of a ‘no deal’ scenario might look like and what companies should be doing to mitigate the risks associated with a hard Brexit. I have to say we are underwhelmed with what we have seen from Government. Information is too basic and ducks most of the questions we have been asking’.
• Just Eat’s share price has declined to a one-year low of 669.4p following reports that Uber is in early-stage talks to acquire UK rival Deliveroo.
• Deliveroo has extended its corporate service, ‘Deliveroo for Business’, to include hotels, events, and fruit baskets and snacks.
• New World Trading Company (NWTC) has reported a 15% rise in underlying sales for the full year to 31 March 2018, per MCA. Sales for the year increased to £45.1m, with adjusted operating profit up by 14% to £5.2m thanks to the successful openings of five new sites in the period.
• UKHospitality has welcomed the confirmation of the rights of EU workers in the UK, commenting: ‘The Prime Minister stated today, in clear, unambiguous terms, that in the event of a “no deal” Brexit, EU citizens currently living and working in the UK will retain their current rights. This is a hugely welcome categorical reassurance for hospitality, which employs many EU citizens who apply their talents and services to customers across the UK.’
• Paddy Irish Whiskey has agreed a partnership with London Irish Rugby Club for the 2018/19 season.
• Petrol prices could fall by up to 3p a litre as a result of falling wholesale prices and a potential supermarket price war, according to the AA. Average petrol prices hit 130.6p a litre last week — the 11th weekly price increase in a row.
• Per Mail on Sunday, Crabbie’s ginger beer maker Halewood Wines & Spirits could be valued up to £300m by Lloyds Banking Group’s private equity arm after talks to buy a substantial stake in the business. The bank is reportedly fighting off an unidentified rival bidder.
• Labour has said that workers could be up to £500 a year better off if it enacts a plan to give them chunks of the company that they work for. The “inclusive ownership fund” would apply to companies with more than 250 employees.
• Moody’s reports that Thai Beverage Public Company Limited’s rais of $2.4 billion via a private placement (institutional and high net worth individuals) with all proceeds to be used to refinance existing debt, is credit positive because. Moody’s says ‘it will relieve some of the refinancing pressure related to THB158 billion ($5 billion) of maturing bridge loans ThaiBev used to finance its acquisition of a 53.59% stake in Vietnam’s leading beer brewer, Saigon Beer’.
THOMAS COOK PROFIT WARNING:
• Thomas Cook has updated on full year trading saying the Lates market has been tough & recent trading ‘disappointing’.
• TCG says it has made ‘good strategic progress through the year to date’ but it has seen a ‘challenging period of ‘lates’ trading following unprecedented months of hot weather.’
• TCG says FY EBIT should now be around £280m. CEO Peter Fankhauser comments ‘summer 2018…has also been marked by a prolonged period of hot weather across Europe. This meant many customers spent June and July enjoying the sunshine at home and put off booking their holidays abroad, leading to even tougher competition and higher than usual levels of discounting in the ‘lates’ market of August and September.’
• Mr Fankhauser adds ‘our recent trading performance is clearly disappointing. However, despite the recent challenges, we continue to make good strategic progress which positions us well to drive further performance improvement.’
• TCG says summer is 90% sold. It does not give details but margins are clearly under pressure.
• TCG says ‘our Group Tour Operator has experienced a highly competitive trading environment in the ‘lates’ market, as a consequence of the sustained period of hot weather across Europe this summer. Overall Group Tour Operator bookings are up 1%, while pricing is up 3%.’
• UK sales are in line with last year with prices (against a weak pound) up 7%.
• TCG reiterates ‘trading since the last update has been tough, particularly in the Tour Operator, where our ability to drive margins in the ‘lates’ market has been further restricted by excess summer capacity.’
• There may have been some bad debts as TCG says ‘in addition, we have reflected the more difficult trading environment for some of our suppliers in our approach to historic hotel recoveries, a non-cash item.’
• TCG adds that FY19 will also be hit as it says ‘the impact of the hot summer is continuing to be felt into Winter trading.’
• TCG concludes ‘despite recent challenges, we continue to make good strategic progress which positions us well to return to profitable growth.’
• Langton Comment: This should not come as a surprise but, nonetheless, the tone of TCG’s comment will be sufficient to move its share price.
• The new news is not so much that the weather has been good in northern Europe but rather that the disruption in the lates market has continued into FY19.
• This will be be disappointing and, as that is the word used by the company itself, the shares will decline.
• However, whilst we are familiar with the good news – bad news -good news format of such trading updates, it is fair to say that there is some good stuff going on at TCG (albeit for the moment not visible in the P&L).
• Hence we would suggest that, should the shares fall by an excessive amount, they could offer value – but see below. The weather, as a glance out of the window will confirm, has returned to normal and bookings should recover.
• Brexit next year (driving license issues, ATMs perhaps not working etc.) could, however, lead to further delays in bookings.
HOLIDAYS & LEISURE TRAVEL:
• EasyHotel updates on openings saying it has conditionally acquired a prime Blackpool site for a purpose-built 103-room hotel’
• EZH says it ‘has opened three further owned hotels (Leeds, Sheffield and Barcelona) as well as two franchised hotels (Reading and Belfast). This takes the total number of owned rooms open to 1,130 with a further 1,938 franchise rooms now open. All five hotels are trading strongly and in line with management expectations.’
• EZH says it has conditionally acquired the above-menitioned 999-year lease on a site at Blackpool Promenade ‘to develop a purpose-built 103-room easyHotel, subject to receiving planning permission.’
• CEO Guy Parsons comments ‘the five hotels that we have recently opened have traded strongly from day one and we are delighted with the positive customer reaction to our stylish new brand format.’ Mr Parsons adds ‘I am also pleased to announce our intention to open an easyHotel in Blackpool, Britain’s most famous seaside resort. Blackpool is a prosperous and lively city and is hugely popular with UK and international visitors.’
• Thomas Cook is lining up to ten new Cook’s Club beach hotels, marketed at young couples and groups of friends. The new openings are set to be in Greece, Turkey, Italy, Egypt, The Gambia and Bulgaria. The new properties confirmed on Friday will bring the number of rooms available up to almost 2,000.
• Jennifer Atkinson, chair of Inspiring Travel Company, said ‘We are going to have to look harder for opportunities’ regarding Brexit at the latest Travel Weekly Business Breakfast.
• STR reports US hotel occupancy down 3.3% to 69.8%, ADR down 0.3% to $131.03 and RevPAR down 3.7% to $91.47 year-on-year for the week ending 15 September. Jan Freitag, STR SVP of lodging insights, said ‘Performance levels dropped in several major markets as Hurricane Florence moved up the Atlantic Seaboard.’
• Travel Weekly’s latest Business Breakfast reiterated the need for clarity on Brexit stating that some travel companies will be forced to fold. Jennifer Atkinson, chair of Inspiring Travel Company, said ‘We are going to have to look harder for opportunities…Sadly, only the strongest survive, therefore there will be casualties.’
• The Times reports up to a third of TripAdvisor reviews could be fake, with hotels and restaurants buying positive reviews. An investigation has found that websites are offering glowing reviews for £38, with one offering 10 positive reviews for £69.
• Mr & Mrs Smith, a luxury travel company, has raised more than €5m through crowdfunding, following a change that makes it easier to raise bigger sums through equity platforms. Changes to the EU Prospectus Directive on July 21 has increased the limit that can be raised from retail investors without having to issue a prospectus from €5m to €8m.
• Comcast has submitted an improved bid for Sky, valuing the company at more than £30bn and beating Rupert Murdoch’s Fox in a rare blind auction process set by the UK’s Takeover Panel. Sky has recommended its shareholders accept the bid, describing it as an ‘excellent outcome’.
• Gfinity partners with Ove Arup & Partners to design an integrated esports facility, which will enable gamers of all levels to come together, share experiences and compete. The global gaming and esports communities number 1.93 billion and 368 million respectively with the number of people competing and watching esports reportedly growing at 17% yoy.
FINANCE & ECONOMICS:
• The US is to impose tariffs at 10% (rising to 25% next year) on $200bn worth of Chinese imports from today in response to what it says are unfair trading practices by China. The tariffs impact handbags, rice and textiles. Some items such as smart watches and high chairs have been exempted.
• Sterling fell sharply in the wake of the Saltzburg car crash. Trading at $1.3079 and €1.1136.
• Oil up over a dollar at $79.96
• UK 10yr gilt yield down 3bps at 1.56%
• World markets: All up Friday, Asia mixed in Monday trade.
• Government borrowing rose by more than expected in August after slower growth earlier in the year. Borrowing was £6.75bn in August this year versus £4.35bn a year ago.
• Brexit, politics etc.:
o PM says Brexit talks have hit an impasse. Wants respect. And somebody with whom to negotiate. Jeremy Hunt warns EU not to mistake politeness for weakness. And don’t call us liars, say liars.
o Donald Tusk says ‘we studied the Chequers proposals in all seriousness. The results of our analysis have been known to the British side in every detail for many weeks.’
o Professor Chris Grey of the University of London says Mrs May’s ‘premiership has been marked by a litany of monumentally poor judgments . . . Throughout, she has mistaken stubbornness for strength’. Suez-like, Prof Grey says Ms May has ‘consistently backed herself, and the country, into unnecessary and impossible corners.’
o Find corner, paint oneself in. DUP will veto any move to put a regulatory barrier between Ulster & the rest of the UK.
o Der Spiegel suggests Brexit’s impact on German economy to be ‘relatively small’.
o Brexit debacle sees Labour flirting with second referendum, calling for election, sniffing power.
o Sunday Times & others say an election is being planned for November. Brexit secretary Dominic Raab denied that this is the case.
o Labour would nationalise key industries ‘as a priority’. They will tax second homes to raise money to tackle homelessness and give chunks of companies to the workers employed by them.
PRIOR DAYS LATER TWEETS:
• Later tweets: Uber is in early talks to buy Deliveroo. Price $2bn plus. Underpins valuations but more Brit assets sold overseas.
• JDW coses Harrogate site for health reasons, faces strikes etc. Says is increasing salaries for commercial reasons, not being coerced
• ‘Brexit defeating itself’ says New Statesman. As good a way of putting it as any. Says ‘rejection of Theresa May’s plan was inevitable’
• Double bluff? But is Ms May that good an actor? Chance of hard Brexit, election, new PM, Socialist government etc. all higher than yesterday
• Some Brexiters liars or fools per Macron. Learn from history or repeat it. See hubris, arrogance & ignorance behind 1956 Suez Crisis
• Moss Bros profit warning on heels of good RNS retail numbers. Go figure. But note online sales +21%. Some leakage there?
START THE DAY WITH A SONG:
• Back tomorrow.
RETAIL NEWS WITH NICK BUBB:
• Debenhams: The embattled management team of Debenhams is taking analysts to see their new Watford store this morning, to show off their new vision for department store retailing and there will be a lot of fighting talk, but the share price tells its own story and having slipped below 10p last week (pulling the market cap below £120m) the City is clearly betting that the future is not bright…
• Next: Back on August 1st, with the Q2 sales update, Next warned that the heatwave and a decent July had probably brought sales forward from August and maintained its cautious full-year full-price sales growth guidance of c2.2%, despite achieving 4.5% growth in H1 (up 15.5% in Directory and down 5.3% in Retail). Next got off to a good start to the year, thanks to soft Q1 comps, but the overall comps are tougher in H2 and given that the High Street is likely to be tough this Christmas, after a difficult September, it would be a surprise if Next upped their guidance tomorrow. However, as usual, the views of the estimable CEO Simon Wolfson on the outlook for the economy and Brexit uncertainty will be eagerly awaited.
• Saturday Press and News (1): The front pages of the Saturday papers were full of headlines about the embattled PM’s plea for “respect” from the EU, whilst the main stories in the Business pages were the rumoured Uber bid for Deliveroo and the big premium for the Farfetch IPO in first dealings in New York on Friday. The Moss Bros warning about the adverse impact of the World Cup on summer trading was picked up by the Times and the FT, whilst the Guardian went to town on the news that the disgraced former owner of BHS, Dominic Chappell, had lost a legal appeal, with the judge calling him “unbelievable” and “evasive”.
• Saturday Press and News (2): The saturation coverage of the Jack’s discount store launch by Tesco continued, with the Guardian getting the food writer Jack Monroe to review the quality of the Jack’s own-label products (she was not impressed, despite the low prices). The FT article by the well-known consumer journalist Harry Wallop highlighted that Tesco emphasised the low-price heritage of its founder Jack Cohen in the presentation to the press and analysts last Wednesday at the new Jack’s store in Chatteris and flagged that 80% of its products are British (“A taste of Brexit Britain in a windswept Tesco car park”), whilst the veteran City commentator Neil Collins thundered in his FT column that the new venture by Tesco is more proactive than the planned Sainsbury/Asda merger (“Tesco Jacks up the ante”). And the “Small Cap Focus” column in the FT looked at the fortunes of 3
• Saturday Press and News (3): Burberry remained in focus, with the front page of the FT “Life and Arts” section devoted to an interview with the new Design Director, Riccardo Tisci, about his first catwalk range (“Burberry- barometer of Britain?”). Burberry was also one of the “Five catwalk stars for your portfolio” highlighted in an article in the Telegraph Money section (along with Ted Baker, the French group Kering, Boohoo and ASOS). However, the lead story in the Times market report (which also noted that Jefferies has cut its target price on Next) was the downgrade on Burberry by Credit Suisse on Friday (“Brokers can’t wait for the success of Burberry”).
• Sunday Press and News (1): The main focus in the Sunday papers was that the US cable giant Comcast has won the auction for Sky, but the big Retail story was the Sunday Times scoop that suppliers to Philip Green’s embattled fashion empire Arcadia have had their credit insurance cut. There was also lots of coverage in most papers of the news that “Mad Mike” Ashley has again had the nerve to lash out at “greedy House of Fraser landlords” and has “named and shamed” the 3 landlords who own the House of Fraser stores in Edinburgh, Swindon and Hull, which are to be closed by Sports Direct.
• Sunday Press and News (2): There was, inevitably, more coverage of the Jack’s discount store launch by Tesco last week, with a big feature in the Sunday Telegraph (“Tesco comes out fighting with Jack’s”), although the Mail on Sunday flagged that Aldi and Lidl are still on track to have over 15% of the grocery market between them within 3 years. The Sunday Times took a different angle on Jack’s, with a big feature on the pressure on global consumer brands from the rise of own-label ranges (“Brands on the run”).
• Sunday Press and News (3): In terms of upcoming news, the Mail on Sunday highlighted that Joules faces a potential shareholder revolt at its AGM over share buyback plans, whilst the Sunday Times flagged that Card Factory Chairman Geoff Cooper is under pressure over the poor performance of the business, ahead of Tuesday’s interims. And there were snippets in the Mail on Sunday and Sunday Times about the fact that the Next interims on Tuesday will show that it is outperforming other High Street fashion retailers. Finally, Boohoo was the main Business feature in the Observer, ahead of Wednesday’s interims (“Dressed to kill: will Boohoo’s results leave High Street chains in tears?”), noting that the Online retailer has been clothing itself in glory, but “a £50m incentive scheme for its new boss has raised eyebrows”.
• Today’s Press and News: We haven’t had time to really look at today’s papers yet, as we have to make our way to Watford, but there looks to be some follow up on the Mike Ashley attack on “greedy landlords” and there are plenty of previews of this week’s company news, eg with City AM flagging that Online growth will be the saviour of the Next interim results and highlighting the apparent investor row ahead of the Joules AGM.
• News Flow This Week: Tomorrow brings the Next interims, along with the Card Factory interims and the Hotel Chocolat finals. The Boohoo interims are on Wednesday, along with the monthly CBI Distributive Trades survey. Thursday brings the Halfords Capital Markets Day/Strategy Review and the Joules AGM. Then, with the end of the month coming up surprisingly quickly, we get the GFK Consumer Confidence index first thing on Friday.