Langton Capital – 2018-10-04 – Discounts, Brexit & Food, MOD, Hawthorn, Elegant Hotels…
Discounts, Brexit & Food, MOD, Hawthorn, Elegant Hotels…
A DAY IN THE LIFE:
Defeat seems to sometimes make politicians more human. Michael Portillo was more popular in defeat than he ever had been as a Tory Boy and Ed Balls has made a name for himself dancing, taking part in quiz shows and presenting relatively interesting documentaries but what, with that in mind, is David Cameron up to at present?
I think he may be nailed in a shed at the bottom of a garden somewhere because he’s not been visible and, even more than three years after his ill-advised promise to his right wing to hold an EU referendum should his party win the 2015 General Election, he’s notable only by his absence.
He’ll probably pop up somewhere when his memoires are written, at which point we’ll probably see more of him than is good for his digestion but, having riven the country in two and cost us on some estimates £50bn or more to date, he might be best to leave it a few years. On to the news:
PUBS & RESTAURANTS:
• Prezzo offering 2-4-1. Café Rouge 30% off mains, Pizza Hut 33% off food Sun to Thurs.
• MODPizza has reported numbers to end-Dec 2017 to Companies’ House saying that revenue in the period rose to £3.7m but losses widened from £5.0m last year to some £11.1m. Accumulated losses since incorporation are now £16.1m. The group, which is in a build up phase, closed one unit in the period and ended December last year with five units in operation.
• MOD says ‘the company will seek to drive the performance of its five existing restaurants in the coming year as well as rolling the concept out further with up to 4 openings planned in 2018 and the intention to build a significant pipeline for future years.
• Hawthorn Leisure Holdings has reported numbers to end-Dec 2017 to Companies’ House saying that the group generated revenue of £42.4m in the year (2016: £41.5m) and it reports a profit before tax for the period of £1.9m versus a loss last year of £10.7m. The group has a tax credit and a profit after tax of £5.4m. Accumulated losses since incorporation are now £31.2m.
• Hawthorn, which owns and operates tenanted and managed pubs in the UK, says ‘in June 2017, the group successfully renegotiated its key wet supply contracts’. It says ‘this has improved drink margins’ and says that the prior year (September 2016) restructuring of the business ‘has provided significant savings in finance costs and improved cash levels’.
• Hungry House has reported numbers to end-Dec 2017 to Companies’ House saying that turnover in the year increased to £35.3m from £29.1m but that losses widened from £8.0m to £15.0m. The company has accumulated losses since incorporation of £45.4m. Subsequent to its year end, the company, which was formerly a subsidiary of Delivery Hero, was purchased by Just Eat in April this year.
• Prestige Purchasing has surveyed supply chain leaders and ‘highlighted widespread and deep concerns about the impact on food and drink prices once the UK leaves the EU next year.’ Prestige says ‘the survey…showed that operators fear changes to import tariffs, migrant labour restrictions, and a weakening pound will have a greater negative impact on their food and drink supply than all other factors, even climate change.’
• Prestige reports ‘over 80% of respondents are either highly or critically concerned about these areas. 73% of respondents felt that leaving the EU without an agreement would have negative supply consequences, with 67% saying that cancelling or indefinitely delaying Brexit would have positive consequences on their supply chain. Results indicate that the Chequers Plan scenario is viewed as likely to generate broadly neutral outcomes.’
• Prestige says ‘this survey shows the deep level of concern about Brexit being felt by supply chain professionals within many of the large and well- established catering businesses in the UK, most of which are household names. Since the referendum outcome in 2016 the CGA Prestige Foodservice Price Index has shown 11% food/drink inflation due mainly to the slump in the value of sterling.’
• Oil at 4yr highs. 1p on fuel is reportedly £500m off spending power.
• Shares in Funding Circle flopped on their first day’s trading on the London Stock Exchange down by as much as 24% from the float price of 440p at one point. They recovered to around 364p.
• Services PMI for Sept slips to 53.9 from 54.3 in Aug. See below.
• The vietnamese grab and go concept HOP, has secured the former Bel-Air site at the Cheesegrater building, London.
• Hippo Inns, the EI group backed, Rupert Clevely founded pub group, has announced that it will open its twelfth pub, The White Haus the November on Farringdon Street.
• Co-founder of alcohol-free gin brand Ceder’s Craig Hutchison has told delegates at The Morning Advertiser’s Spirits Summit that pubs and bars need to do more to pull in punters who don’t drink alcohol. Hutchison stated: ‘One in five adults don’t drink alcohol at home and they have been neglected. How come if you’re not drinking alcohol, you don’t get the same options? We have seen a 30% rise in no-alcohol consumers since 2013’.
• Five Guys, the US better burger chain, has closed its first UK site. The group secured a new £100m banking facility through Goldman Sachs as it aims to expand further in the UK.
• Pret A Manger has announced that it will provide full ingredient labelling on freshly made food following the death of a 15-year-old caused by an allergic reaction to one of their baguettes.
• Harpoon Brewery and Dunkin’ Donuts will collaborate to produce a 6% ABV Coffee Porter brew, available in eastern US throughout Autumn.
• In the US, TSG Consumer Partners has acquired a majority stake in Dutch Bros Coffee, with the chain planning to use the funding to fuel its growth from 300 outlets to 800 over the next five years. TSG acquired a 23% stake in BrewDog for £213m last year.
• The BBPA has reacted to Theresa May’s speech at the Conservative Conference, with Chief Executive of the organisation, Brigid Simmonds stating: ‘We welcome the Prime Minister’s speech today, ‘backing’ businesses both large and small. Of course, the first test of this for Britain’s publicans will be in the Budget later this month. Cutting beer duty, as well as tackling unfair business rates, would be a huge boost to those in the pub business. This is why we are supporting the Long Live The Local campaign, which now has over 80,000 signatories’.
• UKHospitality’s Chief Executive, Kate Nicholls, has responded to the same speech from the PM, commenting: ‘The Prime Minister today said she backs businesses but earlier this week announced an immigration policy that will restrict the flow of workers and tipping legislation that will only place further burdens on employers. It is time for a coordinated, positive relationship between Government and the hospitality sector, starting with a Tourism Sector Deal’.
• UberEats riders and several workers from JD Wetherspoon, McDonald’s and TGI Fridays have planned a strike for today. UberEats workers are demanding £5 per delivery and a further £1 per mile for each delivery.
• Tesco has recorded its greatest UK sales growth for a decade, despite this news the group’s shares fell 8% in yesterday’s trading.
• The Paper Straw Co. in Manchester has become the first manufacturer of paper straws in the UK for decades, following the public pressure placed on single use plastic straws.
HOLIDAYS & LEISURE TRAVEL:
• Elegant Hotels updates on trading. Says ‘trading since the interim results in May has remained in line with market expectations. In addition, bookings for the year ended 30 September 2019 are currently tracking ahead of the same period last year.’
• British holidaymakers may face a €7 fee and an online application process if they want to visit Europe after Brexit, with Europeans visiting Britain having to submit security and criminal record checks before arriving.
• Manchester Airports Group has bid to operate Bulgaria’s Sofia airport, supported by Chinese construction firm BCEG. CEO of MAG, Charlie Cornish, said ‘We want to deliver direct international connectivity to Bulgaria to stimulate tourism and economic growth.’
• Tencent Music files to IPO in the US with an initial fundraising target of $1bn and a valuation of $12bn.
FINANCE & ECONOMICS:
• HIS Markit Services Sector PMI for September shows a small drop to 53.9 from 54.3 in August. Markit describes growth as ‘solid’. Markit says ‘service providers indicated that new order growth eased slightly since August.’
• Markit comments ‘the service sector continued to report solid steady business growth in September which, alongside news of sustained expansions in both manufacturing and construction, suggests the UK economy expanded by just under 0.4% in the third quarter.’
• Added to the 0.5% experienced in H1 gives 0.9%. This makes the c1.7% forecast for the year as a whole rather too challenging to achieve.
• Markit says ‘the data therefore add to signs that the economy has enjoyed robust growth since the rocky start to the year, when extreme weather disrupted business. Brexit worries continue to dominate the outlook, however, keeping business optimism firmly anchored at levels which would normally be indicative of an imminent slowdown.’
• Sterling down v dollar at $1.2931 but up versus Euro at €1.1272
• Oil up sharply to $86.15
• UK 10yr gilt yield up sharply to 1.59%
• World markets: UK up yesterday, Europe down, US higher but Far East down in Thursday trade
• Brexit etc.:
o EU to meet to discuss Brexit on 17 Oct. Summit planned for 17-18 Nov.
o Dominic Raab denies the UK is being led by the DUP in its Brexit negotiations
o PM May tells Tory Conference to unite behind her. Says Austerity is history if she can get Chequers through
o Chequers 2.0 suggests UK could keep same external tariffs as EU. Would be bound by the same trade policy for some time, suggests FT. Would be akin, perhaps, to leaving over a two or three decade timescale. Although one of the few ‘workable’ solutions, this would likely annoy virtually everyone.
PRIOR DAY LATER TWEETS:
• Later tweets: CGA Prestige says level of Foodservice Price inflation has reduced by a third. Meat cheaper along with Sugar but wheat etc. higher
• Jet2holidays is reported to have increased its potential passenger numbers, as suggested by its ATOL licence, by around a third
• Boris says PM’s Chequers’ plan is an ‘outrage’ & UK is ‘locked in the tractor beam of Brussels’. No surprise after 45-odd years
• UK services PMI eases slightly in Sept to 53.9 from 54.3 in August. Estimates were around 54.0. Markit refers to uncertainty etc.
START THE DAY WITH A SONG:
Yesterday’s song was Power to the People by John Lennon, today who sang:
So can’t ya see me standing here,
I got my back against the record machine
I ain’t the worst that you’ve seen
Ah, can’t you see what I mean?
RETAIL NEWS WITH NICK BUBB:
Ted Baker; The Ted Baker share price was a bit weak yesterday, ahead of today’s interims, as if the City was nervous about what the company might say about current trading and the news is not reassuring, in all honesty: “Global markets have continued to see challenging external trading conditions which have impacted performance. In the UK, Europe and the East Coast of America, trade has also been affected by the unseasonably hot weather in September. In addition, trading in the UK has been impacted by the well-publicised challenges facing some of our trading partners”.
DFS Furniture: After the surprisingly resilient trading reported by ScS on Tuesday and Topps Tiles yesterday, DFS also reports improved trading with its final results (for y/e July) today, flagging that “the market has recovered since the start of the new financial year, with the group seeing like-for-like order growth across all brands over the first nine weeks”. DFS go on to highlight that “we believe, however, we are benefiting from deferred purchases in the prior financial year and overall we expect the market to remain subdued into 2019, constrained by political risk and weak consumer sentiment”. Acquisitions boosted total sales but underlying sales were 2% down in the year and DFS again highlight that their Q4 was poor, because of the heatwave and World Cup etc (as per the warning in the July 12th pre-close), although,, frustratingly, no detailed Q4 figures are
John Lewis Trading Watch: Despite the general buzz about a pick-up in Homewares/Furniture trading, John Lewis continues to struggle, according to Tuesday’s weekly sales overview from JLP. W/e Sept 29th saw gross sales up by 1.8% (flat on a LFL basis: see below), with Electricals up by 4.1% in gross terms and Fashion sales up 5.6% gross, but Home sales were down by 5.4% gross, despite weak comps. Overall gross sales are now running flat over the last 9 weeks combined (c2% down LFL), pulled back by a 4.1% drop in Home sales.
Waitrose Watch: Over at Waitrose last week was pretty disappointing, with gross sales 2.2% down, ex-petrol, in w/e Sept 29th (c2% down LFL). You’d have thought that the “Indian Summer” in the South-East would have driven a bit of last-minute barbecue business, but the only comment offered in the weekly sales overview was that “sunny but cold weather for much of the country drove sales of autumnal food”. This time last year Waitrose was pushing its “Essentials” range pretty hard with promotions, but you wouldn’t say the LFL sales comps were exactly tough. The last 9 weeks overall have been down by c0.9% gross, despite the strong start to August for Waitrose, and if October also turns to be disappointing then questions would have to be asked about the gross margin maximisation strategy, driven by all the range reviews…
Tesco: We flagged yesterday that LFL sales growth in the core Tesco UK business was better than expected and that the group remains on track for its medium-term profit margin targets, but the City was disappointed by the shortfall in interim profits (driven by weakness in Central Europe and Asia) and the warning of more second half pressure in Thailand and the share price fell sharply ahead of the 9am analysts meeting, as full-year profit forecasts were trimmed. And the share price stayed weak after the meeting, even though CEO Dave Lewis spoke well about the improvements in UK brand perceptions and range architecture (and the increasingly heavy marketing of the stronger price advantage over Aldi and Lidl) and addressed the problems in Poland and Thailand.