Langton Capital – 2018-12-18 – Confidence, EasyHotel, migrant policy, High St & other:
Confidence, EasyHotel, migrant policy, High St & other:
A DAY IN THE LIFE:
Judging by the number of out-of-office emails that we’re getting, people may be either 1) beginning to break up early for Christmas or deciding that 2) discretion is the better part of valour and that they’d be well-advised not to try to get any work done on, shall we say, a full stomach.
But whatever the reason, we’re beginning to feel a tad lonely. So, don’t hesitate to drop us a line, send us beer or whatever as we’ll be hear to the death. Or at least until Friday. On to the news:
PUBS & RESTAURANTS:
• Kate Nicholls, Chief Executive of UKHospitality has commented on the apparent confirmation that under new Government plans, future EU migrants will be required to earn £30,000: ‘Since the publication of the MAC report, we have, along with others, repeatedly made the case for a future immigration system that supports hospitality. If the rumours are to be believed, then the Government is just not listening to the needs of business. This is an ideologically-driven decision that is not going to benefit UK businesses, it will only do harm to the UK’s economy’.
• Research from IHS Markit has found that Visa credit card spending has fallen for the second consecutive month in November, with a drop of 0.7%.
• Starbucks’ first UK franchised business partner, 23.5 Degrees, is set to open 60th store on 14th December in Sheffield.
• Greggs sausage rolls and sandwiches are set to become available for delivery on Deliveroo in London, Bristol and Newcastle, following a successful trial in Birmingham.
• Less than a quarter of 18-34 year-olds in the UK have said that they have gone to work still feeling the effects of boozy nights out, research from Willis Towers Watson has indicated.
• Chief Executive of UKHospitality, Kate Nicholls has called on the government to support businesses and employees regarding new workers’ rights: ‘These measures strike a balance between protecting workers’ rights and ensuring the highly-valued flexibility that exists in the UK. As ever, we need to see clear and unambiguous guidance from the Government to support businesses and ensure there are no accidental breaches to any new measures. The Government must also recognise that new measures will increase bureaucracy for businesses’.
• Shoppers have been benefiting from record levels of pre-christmas discounting, as the retailer’s sales falter. Research from Deloitte has found that discounts are currently averaging at almost 44%.
• Bohem Brewery has expanded its canned range, adding two Czech-style lagers to its offerings.
• The healthy food and juice chain, Crussh has announced it will open a second rail site with SSP at London bridge in Spring 2019.
• Following the government’s announcement of a strategy to cut waste and promote sustainability, UKHospitality has warned that measures should be proportionate and affordable.
• Autogrill has said that it will consider all opportunities that could create value for its shareholders, following the media report that rival, Elior, is considering selling its airport and motorway catering business.
• The burger group Jack in the Box Inc has announced that it is considering a sale of the company. The group has begun talks with several potential buyers, sending their share price up 7%.
LEISURE SECTOR BUSINESS CONFIDENCE:
• The latest Business Confidence Survey from CGA and Fourth has shown that trading is perhaps better than expected but that confidence is fragile
• Confidence ‘remains strained’ says the CGA Business Confidence Survey. Some 63% of business leaders surveyed in the hospitality industry were optimistic about their own businesses’ prospects for next 12 months (down on the last survey), but only 39% are upbeat about the market as a whole over the same period.
• CGA reports that ‘market optimism has moved from 34% in February to 36% in July and 39% last month, following a temporary jump to 47% in May. However, the number of leaders confident in their own company’s prospects has actually slipped slightly from 64% in February and 69% in July to 63% now, despite the fact that last month more than three quarters said they had traded ahead of or in line with their expectations in the last six months.’
• CGA says ‘this simply reflects the volatility and uncertainty in the market. This quarterly survey, conducted in November 2018, shows that operators are getting on with business, focussing on improving service and customer experience, as well as increasingly embracing trends in healthy eating and sustainability.’
• Some 50% of leaders are now ‘predicting a decrease in consumers’ frequency of eating and drinking out, and only one in 20 (5%) expecting a rise. The downbeat assessment comes amid growing concerns about the impact of Brexit on consumer confidence.’
• CGA concludes ‘our latest CGA Business Confidence Survey reflects a complex and mixed picture in the market at the moment. Many businesses continue to find conditions extremely challenging, and confidence clearly remains fragile as the year ends. Christmas trading will now have an enormous impact on the levels of optimism as we enter 2019.’
• Fourth Hospitality reports ‘despite the lingering uncertainty of Brexit, the results do show the confidence of hospitality operators remains steady as they prepare for the year ahead.’
HIGH STREET, CHRISTMAS TRADING, ASSET VALUES ETC.
• Various Press reports suggesting that retailing is tough in the run up to Christmas. No kidding? The ASOS warning shows that, whilst it is the online retailers that have to some extent caused the problem for their bricks & mortar competitors, they are themselves now having to discount. ASOS shares finished down 38%.
• The High Street clearly has issues. Landlords have a problem and the fact that the £2.9bn bid for Intu (at a discount to its asset value) was pulled suggests that asset prices could be under downward pressure. The would-be purchasers blamed ‘uncertainty around current macroeconomic conditions and the potential near-term volatility across markets.’
• To suggest that restaurants could fill the space being vacated by the department stores and numerous other retailers is 1) directionally correct but 2) not on a large enough scale to ‘solve’ the problem. And this process is already causing other problems in the form of overcapacity in the restaurant industry itself.
• Mobile phone shops may have filled space vacated by shoe shops. JD Wetherspoon may have taken a number of banks and, in decades gone by, carpet showrooms and the like took over cinemas but, with countless millions of square feet of retail not being abandoned, it is hard to see a new user that is sufficiently large to make much of a difference to void percentages.
• Councils & government have a role to play but, ultimately, if offices, experiential and residential will not pay the same rent as that paid by the retailers that are giving up on the space, then asset values will continue to fall.
• Whilst that is taking place, many land-owners are likely to adopt the ‘fingers-crossed’ approach to the market and properties will remain empty. At that point, voids may become a social issue and, unless something is done to arrest the process, many High Streets could fail.
HOLIDAYS & LEISURE TRAVEL:
• EasyHotel has announced the conditional agreement for a 209-room hotel close to Paris-Charles de Gaulle Airport, France. The group says it ‘has signed an exclusive letter of intent with Groupe ADP (owner and operator of the three main airports in the Paris region and operator of a network of 26 airports worldwide) for an operating lease agreement for the hotel. The final agreement is subject to planning permission being granted and full legal documentation being agreed.’
• EZH reports the hotel is due to open in the 2020/21 financial year adding ‘the site is within the Charles De Gaulle Airport perimeter, the second largest airport in Europe with around 70 million passengers a year. It is also a short distance from the Aeroville shopping centre which includes over 200 shops, 30 restaurants and a 12-screen cinema complex as well as Paris Nord Villepinte, the largest convention centre in France.’
• EZH CEO Guy Parsons comments ‘following the recent opening of our 204-room hotel in Barcelona this project is early testament to our growing ambitions for the brand in Continental Europe. We see a number of attractive opportunities, particularly in France, Germany and Spain where the Board believes there is potential for the brand to target 10 to 15 cities in each of these countries and we look forward to announcing further opportunities in due course.’
• According to data from Visa’s UK spending index, spending on transport and communication have decreased the most during November, as total spending for the month fell 0.7%.
• A Lancashire couple have been found to have posed for holiday photo with a parrot, despite having claimed to Jet2holidays that they were ill with a gastric condition at the time.
• China’s largest online travel agent, Ctrip, has seen its valuation fall $6bn this year following a slow down in outbound trips due to the ongoing US-China trade war.
• Uber has announced that it intends to bring electric bikes to Britain as it seeks to expand beyond its ride-hailing and food delivery services.
• Ladbrokes has agreed to pay £1m to the victims of a problem gambler who stole money for bets, the Guardian has reported.
FINANCE & ECONOMICS:
• Inflation. The Bank of England is almost certain to leave interest rates unchanged on Thursday. It believes that wages are putting upward pressure on inflation whilst falling oil prices are depressing it. This is true as far as it goes but oil prices go up as well as down whilst wages only really ever go up. Hence inflationary pressures are building up and, when the oil price turns, the Bank will have to find another excuse as to why not to raise rates.
• BDO has suggested that UK export volumes have fallen to three-year-low levels. Brexit concerns (European countries sourcing products from markets other than the UK) & protectionist talk have caused problems. Though less so for our imports.
• Sterling up a little at $1.2627 and €1.1129
• Oil down at $58.62
• UK 10yr gilt yield up 2bps at 1.27%
• World markets down yesterday. Far East down today. Indication for FTSE100 (at 6.45am) down around 40pts.
• Brexit etc.:
o Tory civil war over Europe rolls on as Labour tables a motion of no-confidence in the PM.
o Vote on Mrs May’s partial Brexit to take place in the week of 14 Jan. Only 70dys or so before the UK is due to leave the EU. The referendum to leave the EU took place over 900dys ago suggesting that MPs’ involvement really is only being ‘welcomed’ at the 11th hour.
o Tory MPs arguing for Remain, the May deal, Norway, Norway Plus, Canada and a No-Deal Brexit. Thanks for the guidance.
o PM May (no snap election, no money tree, promised vote on deal etc.) says there will be no second referendum.
o Op Ed. Mrs May, whose proudest boast at one stage was that she was a ‘bloody difficult woman’, may have confused a Bridge-over-the-River-Kwai’ determination to do the wrong thing with leadership. Any half-decent opposition would be 30pts ahead in the polls and the Tories would be out for three terms.
PRIOR DAY LATER TWEETS:
• Later tweets: Nov Tracker: LfLs rose by 1.5% on Nov last year. London > UK as a whole at +2.3%. Pubs +2.1% better than restaurants +0.6% (again)
• Total sales across the groups measured by the Tracker were +3.7% suggesting that new capacity is still running at 2% plus.
• Sales for the cumulative last 12mths are up only 0.8%. This will not be enough to keep margins static.
• Moore Stephens reports the number of restaurants filing for insolvency has nearly doubled over the last eight years.
• Pantomime season in full swing. Tories canvassing for a People’s Vote (say Sky, Sunday Times etc.), oh no, we’re not says Mrs May…
• Red herring rows with Messrs Juncker and Blair manufactured to illustrate Mrs May as a handbag swinger?
• IHS Markit says Visa spend down 0.7% in Nov (after 0.2% fall in Oct). ASOS horror profit warning re Nov. Mike Ashley tells similar story
• Revised GDP numbers this week will tell us if economy still on track for 1.5% or so. Might be a bit of a challenge
• Ashley: Nov = ‘unbelievably bad’. Some players will be ‘smashed to pieces’. ASOS – sees ‘significant deterioration…’
START THE DAY WITH A SONG:
Yesterday’s song was Yellow by Coldplay, today who sang:
Picket lines and picket signs,
Don’t punish me with brutality
C’mon talk to me
RETAIL NEWS WITH NICK BUBB:
Retailer Reaction to ASOS: In response to the shock ASOS profit warning yesterday morning, there is still no sign of any profit warnings from Debenhams or Marks & Spencer…but Boohoo immediately rushed out a reassuring statement at 8.08am to confirm that, ahead of the Jan 15th update, “the group’s trading performance remains strong, with record Black Friday sales across the group and continues to trade comfortably in line with market expectations”. And at 1.05pm JD Sports made a point of announcing that their scheduled post-Christmas update will be on Jan 14th, despite the comment from ASOS that men’s sport footwear sales had been bad. But neither announcement did much good, as the Boohoo share price ended the day down 13.7% and the JD Sports share price was down 7.1%…
Peach Watch: If you’re wondering how the embattled casual dining sector fared last month, given the very gloomy noises about High Street trading in November, we are grateful to the Leisure sector experts at Langton Capital for pointing out that the (oddly-named) monthly Coffer Peach Tracker survey of UK pub and restaurant sales came out yesterday, with November seeing improved trading, with overall sales up by 3.7%, including new openings (up 1.5% LFL). The two sub-sectors again moved at a different pace, however, with pub sales up 2.1% LFL and restaurant sales up by 0.5% LFL. London again outperformed the rest of the country, in both sectors, with London pub sales up 3.1% LFL and London restaurant sales up 0.9% LFL. Paul Newman, Head of Leisure and Hospitality at the accountants RSM (one of the sponsors of the survey of 49 leading companies in the sector) said: “With retailers recently
Today’s Press and News: The ASOS profit warning gets plenty of coverage, given the devastating impact it had on the rest of the sector (the Times claims it knocked £1.4bn off the value of General Retailers) and the Daily Mail runs it together with another front page scare story about panic discounting (“Panic Sales spread Online”), claiming that “web giants offer huge discounts”. On a happier note, the fishing chain Angling Direct has put out a bullish trading update (note that its £53m market cap is not much less than Debenhams’ £61m…).
News Flow This Week: There is no company news scheduled this week, but the John Lewis and Waitrose sales figures for last week will be eagerly pored over when they are announced just before 11am by JLP (note that the comps are relatively soft because of the snow we had a year ago). On the Economics front, we get the CBI Distributive Trades survey for “December” tomorrow morning, the ONS Retail Sales figures for November on Thursday morning and the widely followed monthly GFK Consumer Confidence survey first thing on Friday.