Langton Capital – 2019-03-26 – PREMIUM – Fevertree, Brighton Pier, DP Poland, Vianet, branding etc.:
Fevertree, Brighton Pier, DP Poland, Vianet, branding etc.:
PREMIUM EMAIL – PLEASE DO NOT FORWARD:
A DAY IN THE LIFE:
I maintain that it’s impossible to eat just a little bit of an Easter Egg.
Because it’s moreish. You probably couldn’t stop anyway and, even if you did, how are you going to explain away a hole in the thing, blame the chocolate moths?
So as well be hung for a sheep as a lamb.
Scoff the lot because the chocolate all around your face will give you away and the dog, who can usually be relied on to take one for the team when it comes to mud on the carpet, disappeared food, broken crockery and the like, has drawn the line at taking at chocolate, which he has made it widely known, via several terrible, never-to-be-forgotten accidents, that he doesn’t like.
Anyway, plenty going on this morning so let’s move on to the news:
BRAND EXTENSIONS v BRAND EXTINCTION.
• It’s easier to spot a problem than it is to explain it (let alone solve it). With that in mind, it appears that brands for QSRs & grab-n-go outlets are longer-lived than those for casual diners. Think McDonald’s v Berni Inn. This leads some brands to attempt extensions in order to head off extinctions. These often fail.
Low v high value added:
• Empirically, it seems harder to keep the plates spinning (no pun intended) in casual dining than it is in fast food.
• There’s more that can go wrong, there’s more that does go wrong & the competition is more innovative.
• Hence, as the cheerful amongst us have always said, you’re dying from the day you’re born, and it may be the same with brands
Don’t start from here…
• Useless advice but the worst place from which to start to defend a brand, is to be is over-expanded in an industry with authentic, able and innovative competitors.
• Because your brand may simply have run its course. It’s not really anybody’s fault. It was maybe just shorter-dated than had been imagined.
• Pizza Express, for example, has nearly 500 outlets in the UK and, at the end of the day, did anybody really think it was going to get to 1,000?
• Probably not though ‘overseas’ may be an option. But just why a Chinese-owned, British company offering Italian food in a fourth territory is best positioned to deliver is not immediately clear.
• It has been selling frozen pizzas in the supermarkets and now, in the UK, the group has introduced Za, a pizza by the slice concept, which sounds, between you and me, like a bad idea.
• Because, if prices are low, we’d suggest it doesn’t do much for the core brand and, if they are high, then there are plenty of other opportunities out there
• Restaurant Group with Frankie & Benny has decided to exit stores which, though a little more radical, does seem appropriate where there have been footfall shifts that may be permanent
INITIAL PUBLIC OFFERINGS – BEHAVIOURAL ECONOMICS 6: OVER-OPTIMISM: 26th March 2019:
• We’ll produce something a little fuller tomorrow but many, many IPOs disappoint. But why? Well, you should never ask a barber if you need a haircut and incentives are at play here as brokers etc. are paid to get deals away. The vendors, who know the business well, want to sell. They are on one side of the transaction, new buyers on the other. This is rarely a transaction of equals so why are so many people still attracted to new issues?
Selling the dream…
• Brokers present the facts. They sell the story but, to be really successful, an IPO depends upon the would-be buyers selling the story to themselves.
• They see what the company has done and build a mental ladder to the moon. They extrapolate using what they know (which is limited), but are unable to model what they don’t (which is infinite)
• It’s very difficult to model competitor behaviour, for example. Some competitors may not even exist yet. Some may be bonkers & have deep pockets and new media, markets and trends are likely to come into being such that the best-prepared spreadsheets will be inaccurate over time
• And high returns on capital have always, always, always pulled in competition. Barriers to entry are often a fiction. When they exist, which is not often, they are only relevant over the short term
So what to do?
• Napoleon said even the best-laid plans failed to survive first contact with the enemy. Mike Tyson agreed. Using shorter words, he said his opponents all had a strategy, until he hurt them and it’s much the same in business
• Which does tend to mean that the IPO market is something of a minefield.
• Stock market introductions, where the vendor does not actually sell any shares are one thing but, if the current owner wants to sell, then there is immediately a conflict of interest between sellers and buyers.
• New issues should be viewed accordingly. The stories are well-versed. We need a currency for our staff, etc. but, if the owners are selling, then the buyers should beware
• More heuristics, comment on CVAs (are we seeing landlord push-back), IPOs & other.
GENERAL NEWS – PUBS & RESTAURANTS:
• Fevertree Drinks has reported FY numbers saying revenue was up 40% to £237.4m (2017: £170.2m) with PBT of £61.8m (2017: £45.5m).
• Fevertree’s diluted EPS was 53.19 pence (2017: 39.15 pence) with cash at the year end of £83.6m (2017: £50.9m). The group will pay a full year dividend of 14.5p (2017: 10.65p).
• Fevertree CEO Tim Warrillow comments ‘2018 was a significant year for Fever-Tree. In the UK, we strengthened our position as the leading mixer brand in the Off Trade. In the US, we successfully established our own operations and the business made real progress in deepening and widening its presence in multiple European regions. As the world’s leading premium mixer brand with a strengthening global distribution network we are well set to drive the international opportunity as the move towards the premium long mixed drink continues to gather momentum around the world.’
• Fevertree concludes ‘at this early stage in the year, the Group is trading in line with Board expectations and we remain excited about the size of the opportunity that lies ahead.’
• Brighton Pier Group has reported H1 numbers to 30 Dec saying revenues rose to £16.5m from £16.0m with PBT down at £1.7m from £2.3m last year. Earnings are 4.3p per share (2017: 6.2p).
• Brighton Pier CEO Anne Ackord comments ‘Paradise Island Adventure Golf continues to trade in line with expectations at the time of the acquisition. We are looking forward to our first new site opening (since the purchase of the business) at Rushden Lakes in April 2019.’
• The company says ‘rail network disruptions to and from Brighton continues to affect the pier, which is disappointing; however once the engineering works are complete they will be of great benefit to future visitors travelling to the city and consequently to our Brighton businesses.’ It concludes ‘the Company’s Pier, Bars and Golf businesses remain well invested, strongly cash generative and well positioned for future growth.’
• Brighton Pier Group announces the resignation of Leigh Nicolson, managing director of the Bars division from the Board.
• Vianet Group has updated on trading saying that ‘trading for the second half of the year has been largely as anticipated and, as a result, the Group’s full year profits will be in line with market expectations and ahead of last year’s outturn of £3.62 million.’
• Vianet says ‘we are pleased to deliver good year-on-year profit growth again and it is notable that this has been achieved whilst shifting the focus within Smart Machines from capital to recurring annuity based sales.’
• Greene King successfully trialled selling surplus carvery food at a discount at the end of the day in 19 locations last year. Meals sold at the discounted price will be in the region of half the full price. The Too Good to Go App can be downloaded to mobile devices. It will then let would-be customers know where there’s a deal to be had.
• The power of online. Majestic Wine announced yesterday that it will close some of its 200 stores, concentrate on online & change its name to Naked Wines.
• Majestic says almost 45% of its business is online with a further 20% from international sales. It simply has more stores than it needs. CEO Rowan Gormley says ‘it is clear that Naked Wines has the potential for strong sustainable growth, and we will deliver the best results for our shareholders, customers, people and suppliers by focusing all our energies on delivering that potential.’
• Majestic says that it is trading ‘broadly in line with consensus.’ The group will record a ‘largely non-cash restructuring charges of up to £10m in FY19.’ It says ‘there may be further restructuring charges from FY20 onwards, but any cash outflow is expected to be largely offset by cash inflows from asset sales.’
• Spotting a problem takes effort. Working out a solution is a bit more trying. Executing on that strategy could be the most challenging step of all. With that in mind, Majestic says ‘we are open to any permutation of sale, from someone buying the whole business through to people wanting to buy a handful of stores.’
• Grubhub reports that the US is seeing the popularity of international dishes such as curries, kebabs and butter chicken rise for delivery this spring. Total food delivery sales for the company last year totalled $5.1bn, up 34% on the prior year.
• McDonald’s is spending c$300m to buy an AI company in the fast-food chain’s latest technology investment. Dynamic Yield is a machine learning specialist founded seven years ago. The tech will allow McDonald’s to customise its menu displays based on variables such as the weather and the time of day.
• The ONS reports 1.5 million people in England are in danger of losing their jobs to machines. This amounts to more than 7% of the jobs surveyed.
• The Food & Drink Federation reports that F&B exports rose 2.5% in the year to end-Dec 2018. This follows on the back of growth of 9.7% in the year to end-2017. The FDF says ‘seven of the top 20 markets for UK food and drink exports saw a fall in value, including the United States and France which fell by 2.2% and 3.4% respectively. Exports of salmon and beer fell by 11.6% and 7.0% by value, while the other products among the top 10 exports grew over the period.’
• AB InBev is to change the name of its UK business to Budweiser Brewing Group UK & Ireland. Catchy.
• JW Lees has bought The Goshawk, ‘a 19th Century former coaching inn in the heart of Cheshire’, from Hydes Brewery.
• Same store sales in the US rose by 1.1% in February reports Nations’ Restaurant News. QSR sales were +1.9% whilst casual dining sales fell 1.6%. Rather worryingly, traffic (footfall) is down by 4% y-o-y but check prices (spend per head) is up sharply.
• Contract catering company Elior UK reports pre-tax profits down £4.6m yoy to £1.42m for the period ending 30 September 2018. CFO Eleni Savva said ‘operating profit was impacted by the closure of the MoD business as part of the Hestia process and the immaturity of new group contracts’.
• Tesco will trial the removal of a selection of plastic-wrapped fruit and vegetable to cut down on packaging waste.
• Sports Direct has said it is considering making a cash offer to buy Debenhams outright.
DP POLAND F.Y. NUMBERS:
• DP Poland has reported FY numbers to 31 December saying it saw a 24% increase in System Sales, 18% growth in revenue with 66 stores now open across 30 towns & cities. Nine stores were opened in the period under review.
• DPP reports a 6% like-for-like growth in System Sales 2018 on 2017, adjusting for delivery area splits
• DPP reports a Group EBITDA loss of £1.92m versus a loss of £1.78m in the prior year. The group loss before tax is £3.79m against a loss of £2.63m in 2017. CEO Peter Shaw, who is to leave the group in June, says ‘in spite of a challenging second half to the year we achieved a 24% increase in System Sales and significant growth in both corporate store EBITDA and commissary gross profit in 2018. Understanding the external factors that negatively impacted sales growth, namely the unusually warm and dry weather and unprecedented levels of advertising spend by the two main delivery aggregators, has informed our sales and marketing response in 2019.’
• Mr Shaw says ‘we have launched an innovative marketing campaign for 2019 featuring bespoke video and image content that will run throughout the year on digital, rather than traditional, channels, including YouTube, Facebook and Instagram. Alongside this campaign we are trialling a partnership with the largest delivery aggregator, Pyszne (Takeaway.com) and early signs of significant incremental sales look promising as we leverage Pyszne’s significant advertising spend.’
• DPP concludes ‘the share placing completed at the end of February gives the business the requisite funds for further corporate store openings and investment in sales and marketing.’
HOLIDAYS & LEISURE TRAVEL:
• Reporting on the UK hotel market, PwC says ‘our forecast for London for 2019 calls for only marginal occupancy growth of 0.3%, nudging occupancy to (a very high) 83.6%. ADR (Average Daily Rate) is expected to see around 1.4% growth, taking it to £150.90, a record in nominal terms. But allowing for inflation means prices are in effect going backwards.’
• PwC says ‘as weaker demand and higher new supply additions begin to bite, we anticipate demand and pricing will decelerate in the regions in 2019. We forecast a 2019 marginal occupancy decline of -0.1%, meaning occupancy stays around 76% (still high by historical levels), after a record high in 2018. ADR is expected to see only around 0.5% growth, taking it to £72.50.’
• PwC suggests that increased capacity could hold back performance. It says ‘we believe the high level of hotel development in 2019 and 2020 could dampen performance growth across the UK. This effect could be exacerbated by weaker domestic and international economic and demand growth.’ The accountants say that supply in London grew by 2% last year.
• Celebrity Cruises CEO Lisa Lutoff-Perlo says a Brexit outcome must be determined before the company can consider deploying an Edge-series ship in the UK for a full season.
• The Travel Network Group’s conference warns agents to ‘plan for the worst’ regarding Brexit and to ‘keep their fingers crossed’.
• More than 400 holidaymakers are taking legal action against Tui after they suffered ‘crippling sickness’ in Mexico.
• The £12m Boulevard hotel in Blackpool is set to open later this spring, creating 30 permanent jobs and 40 seasonal vacancies.
• West Coast rail line have been told they will be blocked from bidding for the East Coast main line, causing concern that the Government will choose a ‘sub-optimal’ rail company.
• Egypt was the fastest growing travel and tourism destination in 2018, growing 16.5% according to the WTTC.
• A Travelodge poll reveals almost three quarters of people plan to take a staycation this Easter due to Brexit. The number of people expecting to take a domestic break over Easter has almost doubled to 67% from 34% in 2018.
• Galliard Group’s £75m Great Scotland Yard Hotel is set to open this year, featuring a restaurant overseen by Robin Gill.
• The CAA has reported that the number of disruptive passenger incidents reported on aircraft remained stable over the years 2016 through to 2018.
• A BA aircraft flight destined for Dusseldorf landed in Edinburgh in error after its crew received the wrong paperwork.
• Nike, Inc. reports Q3 revenue up 7% to $9.6bn with revenues for the Nike brand up 12% to £9.1bn.
• Apple is entering the TV streaming market in a move that may see it compete with Netflix & Amazon Prime.
FINANCE & ECONOMICS:
• KPMG reports that the outlook for the UK economy yas worsened. It sees GDP growth of 1.2% this year (was 1.6%). KPMG says ‘the lack of clarity around Brexit, the disappointing data in the Eurozone, the waning stimulus in the US and a slowdown in China are making for a challenging environment.’
• The NIESR welcomes the idea of indicative votes this week. It says ‘it is critical that this process is conclusive, fair to all options, and accounts for the incentives driving Parliamentarians’ votes.’ As the votes are indicative, the government (if it were in a stronger position) could choose to ignore them.
• The CBI has warned that optimism in the financial services industry is at its lowest level since 2008. Only 10% of companies are more optimistic than they were three months ago.
• Sterling down a little at $1.318 & €1.1655. Oil up at $67.37. UK 10yr gilt yield 0.97%. World markets mixed. UK & Europe down yesterday, US up & Far East mixed in Tuesday trade.
• Brexit & politics:
o MPs have voted to take back control of some of the House of Commons’ business with regard to Brexit. Votes on a variety of outcomes are likely on Wednesday. HMG will not be bound by any votes. The votes are likely to cover No Deal, the PM’s deal, a Norway-option, a customs’ union, a second referendum & revoking A50.
o Junior ministers Richard Harrington, Alistair Burt and Steve Brine resigned to vote against the government. Mr Harrington said the government of “playing roulette with the lives and livelihoods” of Britons.
o Sky reports ‘Theresa May is at the mercy of her mutinous cabinet.’ She met with senior ministers & the Cabinet yesterday & remained in her job.
PRIOR DAY LATER TWEETS:
• Is there a ceiling for branding? How large can / should chains grow? And what if they overshoot? See Premium Email.
• Why support IPOs? Don’t ‘most’ new issues go to a discount? Overoptimism bias. See Premium Email.
• What you see is all there is…Familiarity bias. Any of us can inhabit a bubble, miss the obvious. See Premium Email.
• Per Morning Advertiser, the new JD Wetherspoon’s meat-free full English breakfast is being described as ‘too small’ by vegans.
• Thomas Cook Group announces ‘streamlining’ of travel agency estate. Will close 21 shops, some 320 staff to go
• Naked Wines to cut stores & jobs, focus on online sales & change its name to Naked Wines. Will cost a (non-cash) £10m this year
START THE DAY WITH A SONG:
Yesterday’s song was London Calling by The Clash. Today, who sang:
Do I have to tell the story,
Of a thousand rainy days since we first met
It’s a big enough umbrella
But it’s always me that ends up getting wet
TOPICS FOR CONSIDERATION IN PREMIUM EMAIL:
• Thematic pieces including Pubs vs Restaurants, Delivery, Experiential Leisure, Crowd Funding, CVAs, Employemnt levels (& costs) etc.
• Occasional ‘deep dives’ into stocks (Pat Val, RTN etc.), trends etc.
• Book reviews. Black Swans, The Honest Truth about Dishonesty, Dark Pools, Lean Start Up, Smartest Guys in the Room, Client Nine, Black Edge, The Billionaire’s Apprentice, Thinking Fast & Slow, Wizard of Lies & many others.
• Accountancy, Audit & other, thrill-a-minute topics
• Behavioural economics. Over-confidence, Hofstadter’s Law, confirmatory bias etc.
• Other. Guest contributions, From the Archive etc.
RETAIL NEWS WITH NICK BUBB:
Mr Bubb is taking a well-deserved break.