Langton Capital – 2019-02-28 – Merlin, PPHE, consumer confidence, discounts, economy etc.:
Merlin, PPHE, consumer confidence, discounts, economy etc.:
A DAY IN THE LIFE:
So, now we’ve built the vivarium, we need to buy the little beast to put in it and this, I’m told, will be a Bearded Dragon.
And this thing, which has no beard & isn’t a dragon, will eat a mixture of mushed up vegetable matter and insects to whit, crickets.
But it won’t eat these dead, only alive. And they have to be sprinkled with calcium powder to ‘aid the reptile’s development’ after which then presumably strut around the vivarium happlily, emitting the odor of meat and two veg, until the Dragon gets the munchies.
It’s very much like putting gravy on a live chicken and expecting it not to get a bit suspicious but, as the combined brainpower in the vivarium, lizard, insects and all combined, will be equivalent to that found in a miligramme or two of dandruff, I don’t think any of them will be mentally scarred by the process. On to the news:
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PUBS & RESTAURANTS:
• GfK has reported that UK consumer confidence ‘improved’ by 1bp to minus 13 in Feb from minus 14 in Jan.
• GfK says ‘despite a slowdown in overall growth and concerns about the impact of Brexit uncertainty on the UK economy, topline consumer confidence is stable again this month.’
• GfK says ‘while the view on personal finances looking at the year to come is still marginally positive, the continuing depressed sentiment towards the general economic situation might point towards the calm before the storm of post-Brexit headwinds and potential negative economic outcomes.’
• Consumers have consistently shown themselves to be more robust (or less aware) than business when it comes to their view of the economy. Whilst consumers may be right (or they may simply have no choice other than to go on buying bread), human nature (the overoptimism bias etc.) is at play here.
• Harvester & Toby (both M&B) are still offering kids a meal for a quid. Prezzo is 40% off mains etc.
• Imbiba-backed Albion & East is to open a fourth site, in Hoxton, in April.
• Anheuser-Busch InBev has reported revenue grew 4.8% with EBITDA increasing to 7.9% during 2018. The strong sales have been attributed to the global shift towards premiumisation, as volumes only grew 0.3% in FY18.
• AB InBev has seen underlying EPS in FY18 EPS increase from $4.19 to $4.38. The company has also stated that it will pay a final 1.00 EUR dividend per share, taking the total dividend for FY18 to 1.80 EUR.
• Papa John’s International Inc. has recorded its fifth quarter of sales decline, with North American LfL sales falling 8.1% and global LfL sales tumbling 2.6%. CEO of the group Steve Ritchie commented: ‘Sales were impacted by the conversions of the company’s new loyalty program and ineffective promotions. Our creative and value offerings have not resonated with consumers in a heightened competitive environment’.
• Leaving the EU without a deal is believed likely to create an extra 600,000 forms to fill in and cost the wine industry £70m, data from the WSTA has warned.
• Diageo is proposing to increase its position in the Chinese baijiu company, Sichuan Shuijingfang Company Limited, moving the group’s holding from 60% to 70%.
• Six years after it delivered its first meal in London, Deliveroo is set to launch its first managed international restaurant brand Yoobi Sushi.
• Public Health England (PHE) has stated that pubs are able to create their own policy as to whether to allow vaping inside, as there have been no identified health risks of passive vaping to bystanders, the Morning Advertiser has reported.
• Bubble Tea is continuing to grow in popularity across the UK reports Beverage Business World. Marco Getaghty, founder of National Tea Day said: ‘Bubble Tea provides consumers with a social media friendly product which is a far cry from a traditional cuppa. This trend is reflective of the versatility of tea and how it can be used outside of just a hot beverage to get consumers excited and generate higher yield’.
• A study by the Resolution Foundation thinktank has found that the retail industry has the highest rate of redundancy of any sector of the economy. The study found that 31% of those losing their jobs in the retail sector enter straight into unemployment rather than another job, compared to the average of 26% for all areas of the economy.
• The US investment firm, Flacks Group has offered £20m for the fashion and lifestyle retailer Laura Ashley.
HOLIDAYS & LEISURE TRAVEL:
• Hotel company PPHE has reported full year numbers to end-Dec saying that it has registered a ‘strong financial performance’ and seen ‘excellent progress with real estate investment projects’
• PPHE says LfL revenue rose 6% with total revenues up 5%. LfL EBITDA was +5.6% and reported EBITDA was +5.5% at £113.2m.
• Normalised PBT for PPHE was +17.6% at £37.7m. EPS was 69p (2017: 58p) with a total dividend of 35p. CEO Boris Ivesha says ‘in 2018 we delivered year-on-year revenue and profit growth as we benefited from improved trading across all regions. This was achieved despite significant investments of more than £60 million in our hospitality assets causing five hotels to be partly or fully closed during the year.’
• The company continues ‘our results coupled with our strategic progress reflect the strength of our business model, the appeal of our portfolio as well as our rigorous focus on inspirational service delivery to delight our guests.’
• Re current trading, PPHE reports ‘current trading in 2019 has started well and is in line with the Board’s expectations. We are ever mindful of the economic and political headwinds, most notably in light of the UK’s impending departure from the European Union but we have made a number of contingency plans and are confident that the Group is well placed to continue creating and delivering strong shareholder value this year and beyond.’
• Hyatt and Homeinns have created a Chinese JV brand, yet to be named. The brand will be an upper midscale offering meant to target young travelers in China.
• Theresa May has flown to Sharm el-Sheikh for the EU-Arab League summit, but she will be unable to meet with Egyptian president Abdel el-Sisi to discuss the lifting of ongoing flight ban due to ‘logistical reasons’.
• The Spanish group, Palladium Hotel Group has seen total revenue rise to €636m during 2018, however the group did not release any profit figures.
• The US retained its position as the world’s largest travel and tourism economy with the sector contributing almost $1.6 trillion to GDP last year. Visitors from China account for 4% of total US visitors but 11% of all spending.
MERLIN – FULL YEAR NUMBERS:
• Merlin has reported full year (Dec 18) numbers saying organic revenue growth was 5.2% with the progress made in 2018 providing a ‘platform for continued growth’.
• Merlin says visitor numbers were +1.4% at 67m with reported revenues up 5.9% (helped slightly by accounting changes) at £1.65bn.
• Underlying EBITDA is £494m (2017: £474m) with adjusted EPS of 22.9p against 20.5p last year. The dividend has been raised by 8.1% to 8.0p.
• Resort Theme Parks organic revenue grew by 9.1% ‘driven by successful product investment, favourable weather and another strong Halloween period.’
• LEGOLAND Parks organic revenue increased by 6.4% with Midway Attractions organic revenue growth of 1.1%.
• MERL is seeing ‘a continued recovery in London trading.’ This bodes well for the capital’s hotel and innkeepers.
• MERL accommodation revenue grew by 28%.
• MERL launched two new Midway brands during the year, Peppa Pig World of Play and The Bear Grylls Adventure.
• CEO Nick Varney comments ‘2018 saw improved momentum across most of our businesses reflecting the strength of our diversified portfolio and geographic spread. Resort Theme Parks benefited from successful product investment such as ‘Wicker Man’ at Alton Towers; LEGOLAND Parks growth was driven by record levels of accommodation openings; and, in addition to the contribution of seven new attractions, Midway saw improving trends in London.’
• Mr Varney continues ‘we continue to seek to mitigate ongoing external cost pressures and expect to deliver up to £35 million of annualised savings by 2022 through a number of initiatives.’
• The CEO concludes ‘around the world, leisure spend continues to grow as disposable incomes rise and ever greater value is placed on good quality, shared experiences with friends and family.’ He says ‘our continued investment, new market opportunities and our evolving position as a unique, multi-format international operator of strongly branded and IP-led location based entertainment, give us the confidence that we are well placed to deliver long term growth and returns.’
• The BBC and ITV are in the ‘concluding phase of talks’ to create the ‘BritBox’ to rival Netflix. Reports indicate that it could have a £5 per month subscription fee. ITV will spend £25m on the venture this year and £40m in 2020.
• Lego reports revenue up 4% to £4.1bn in 2018 – with profits hitting £900m, due to strong growth in China and a partial recovery of sales in the US and western Europe. Chief executive Niels B Christiansen said ‘We are especially encouraged by our progress given the challenges facing the toy industry and the departure of specialist retailers such as Toys R Us that went under last year.’
• Dipsea, an audiobook producer, raises $5.5m in a funding round led by Bedrock Capital and Thrive Capital.
FINANCE & ECONOMICS:
• The sale of UK manufactured cars to China fell by 72% in January. Output for export as a whole fell by 21.4%. Overall production was down by 18.2%. The SMMT says ‘the industry faces myriad challenges, from falling demand in key markets, to escalating global trade tensions and the need to stay at the forefront of future technology. But, the clear and present danger remains the threat of a ‘no deal’ Brexit, which is monopolising time and resources, undermining competitiveness.’
• Savings in the UK fell to an all time low in January per UK Finance.
• Sterling up yesterday to $1.3301 and €1.1692. Oil up to $66.13. UK 10yr gilt yield up 6bps at 1.27%. World stock markets weaker.
• Brexit, politics etc.:
o HMG says UK economy could be 9% smaller in the case of a no-deal Brexit with food prices higher & incomes lower than would otherwise be the case. Cross Channel trade would be ‘very significantly reduced for months’.
o Labour is to back a people’s referendum on any Brexit deal after its proposals for a tighter customs’ union were voted down in the Commons.
o Voters likely to have to decide whether a financially incompetent Labour Government in the short term would be a price worth paying to potentially stay in the EU over the longer term.
o The BBC reports the UK’s main manufacturing association as saying that proposed new post-Brexit immigration rules will “decimate” factory workforces.
o Politicians playing politics. Jacob Rees Mogg suggesting ERG could vote for a deal they have said publicly is ‘worse than staying in the EU’. Is it true that all political careers end in failure?
PRIOR DAY LATER TWEETS:
• Later tweets: For less than the price of a coffee and a newspaper per week, Langton is to produce a premium email. Drop us a line to join in.
• Allegra says the UK coffee shop market had its 20th consecutive year of growth in 2018. Perhaps we have enough coffee shops now??
• Sterling strength suggests chance of a no-deal Brexit next month now rather slim. Yes, but Sterling did get the June 2016 vote wrong…
• Former Fed bank chair Janet Yellen has said that President Trump does not understand economic policy. No kidding?
• Exhausted school ma’am Mrs May tells Commons to say what it wants; her deal, no deal or extension. Waits till day 970 (of 1,000) to do so
• HMG says food prices will rise, customs checks wd £13bn every year & economy by 9% smaller in Hard Brexit.
• Michael Gove says food tariffs necessary to move income from consumers to farmers. So much for the no-deal, cheap-food fantasy
START THE DAY WITH A SONG:
Yesterday’s song was Norwegian Wood by The Beatles. Today, who sang:
Like a song of love that clings to me,
How the thought of you does things to me.
Has someone been more…
RETAIL NEWS WITH NICK BUBB:
• FTSE Index Watch: Last night brought the latest quarterly FTSE index review and there were several Retail features: mighty JD Sports is now second on the reserve list for entry into the FTSE 100 index (with a market cap of c£4.6bn), whilst the FTSE 350 index saw Pets At Home get promoted, but both Halfords and Superdry were demoted. And, embarrassingly, poor old Debenhams was demoted from the FT All-Share index to the Fledgling Index.
• GFK Consumer Confidence: The widely followed GFK monthly survey came out overnight and although the overall index was expected by City economists to tick down from -14 in January to -15 in February, it has actually ticked up to -13. GfK noted that consumer confidence is not showing the kind of slide seen after the June 2016 Brexit referendum or at the start of the global financial crisis a decade ago. Joe Staton, GfK’s Client Strategy Director, said “It is worth bearing in mind that many economic indicators – employment levels, wage growth – remain positive. But it is frankly amazing that confidence is so stoic and stable in a world of sharp political instability and fear of the unknown.”
• Howden: Talking of consumer confidence, the trade joinery and kitchens business Howden has a very strong and profitable business model, but it is exposed, by definition, to big ticket spending and the housing market, so it is interesting to see it in say with today’s finals that “Whilst we remain aware of the economic uncertainties that we face, we are encouraged by the start we have made to the year and remain confident in our business model for the future”. The comps were tough over the last 2 months and some people in the City wondered whether Howden might struggle to beat them, but underlying LFL sales are running up by 3.5% so far this year.
• Ted Baker: Given all the focus on the M&S/Ocado deal yesterday, we must confess that we completely missed the Ted Baker profit warning…The company said that the PBT for the year to end Feb, to be announced on March 21st, is likely to be c£10m less than expected, at c£63m, albeit £2.5m of this reflected an FX markdown on the year-end value of Overseas debt. The balance of the P&L hit, however, related to stock and margin recognition issues thrown up by a new IT systems overhaul, which is more worrying, as it implies that the business has not been run as conservatively as one might have hoped under COO/CFO Lindsay Page (who is also still the acting CEO, in the continuing absence of Ray Kelvin). Having opened yesterday morning at 1652p, down c18%, the shares rallied somewhat later on, to close the day down by 9%.
• Overseas News Flow This Week: The Zalando finals/Capital Markets Day in sunny Germany today will interest ASOS and Boohoo investors, whilst tomorrow’s Foot Locker Q4 results in the US will interest JD Sports investors.