Langton Capital – 2019-04-04 – PREMIUM – SAGA, IPO performances, older consumers, all-you-can-drink etc.:
SAGA, IPO performances, older consumers, all-you-can-drink etc.:
PREMIUM EMAIL – PLEASE DO NOT FORWARD:
A DAY IN THE LIFE:
I think that one should engage one’s brain from time to time. That’s why I prefer roundabouts to traffic lights and zebras to pelican crossings.
Because, whilst you need lights at busy roundabouts when the traffic is mostly one-way at certain times of the day, they’ll speed up traffic at other times.
And zebras mean that car-drivers and pedestrians should keep their eyes open.
That can lead to accidents, I would think but pelican crossings also encourage apathy and, when the little man is green, most pedestrians will leap out into the road without looking and run the risk of being clipped by a law-breaking cyclist or half-asleep car driver.
Anyway, that’s my bit. It seemed topical because I did pretty much the above half an hour ago and had to advise a Lycra-clad road warrior about his breeding potential, his parentage and his eyesight in short order. There were arguably two losers in that encounter. On to the news:
GREY DAWN: GENERATION HAVE-IT-ALL vs GENERATION HOPELESS: 4th April 2019:
• Consumers are living longer & are staying healthier & more active into late-middle and old age. The first hippies were born in the 1940s. There are huge implications going forward but, in the near term, what does this mean? Older consumers had free education & have mortgage-free homes, good pensions,
• ‘We’re gonna get loaded’ said Peter Fonda in 1966. And ‘we’re gonna have a party…’ For many baby-boomers, the party started in the mid-60s – and it hasn’t stopped
• What with free education, jobs for life, cheap houses, index linked pensions, you name it. But now these people are 70 odd
• They might no longer have their youth. But they’ve got everything else
• Grey consumers can spend freely. They’re empty-nesters with no mortgages. They tend to have good pensions, perhaps part-time jobs & few responsibilities
• The younger of them remain active whilst the older ones can SKI (spend the kids’ inheritance) & then get free health care when they need it
• To the extent that house proceeds are spent on care, wealth could miss a generation
Giving the above some direction:
• This is a two-edged sword. What’s one person’s income could be another’s expense
• Whilst older people may continue to spend, home ownership is falling. Youngsters rent, many of them don’t have cars, they get married later etc. etc.
• Provided there is no social upheaval, baby boomers look set to continue spending. They’ve got a lot of money and there’s lots of them
• They are relatively computer literate, they travel & they have enough ‘stuff’. They may prioritise experiences over products
• In this respect they are like other age brackets – only richer. They may be less willing to accept change, they like brands and they are relatively loyal
• They may succeed in consuming everything. In such cases inheritances will be limited.
• An issue with these big secular trends is that they are rarely a secret. Capacity can flood in to service a market and overcapacity can result. Saga today has commented that the market isn’t what it used to be.
• Pat Val was meant to be a winner. It wasn’t. Saga has updated today. Baby Boomers can be loyal and they have money. But you need to be early to the party.
• Generation Hopeless, admittedly two generations below Generation Have-it-all, could be a loser in one sense. It has less cash, fewer assets but, as these assets are rarely destroyed (houses, share portfolios etc.), they have to go somewhere
• The State may snaffle them, of course but, in the meantime, the lack of home ownership etc isn’t all bad news
• Some things (many online pursuits) are cheap or free
• And Millennials & others, freed from the need (or the desire or the ability) to save for a house deposit, buy a car or to pay for their own infants from age 25, have more cash to spend on other things
• This is not meant to sound patronising, but it appears to be true. Experiential service providers are expanding rapidly and they may continue to do so. Baby monitors and Laura Ashley wallpaper, not so much.
A wealth warning…
• Spotting a trend and making money from it are two different things.
• We suggested in our comments on the High Street High Rollers (28th March 2019) that new and ‘attractive’ concepts may lose money in the short, medium and, unfortunately, the long term
• Shareholders can effectively subsidise staff, directors, customers & suppliers and, unless the company succeeds in ‘breaking through’, there may be no crock of gold at the end of the rainbow
• Our comment above regarding experiential services is a case in point. At the macro level, demand and spend will rise but we can’t invest in the market, but rather in the companies in it
• And here, losses reign supreme.
FROM THE ARCHIVE: TIPPING, STAFF MOTIVATION ETC.
Langton writing in 2006. Before the brouhaha on tipping etc.
• Staff, restaurant owners & customers all agree that having motivated, knowledgeable staff is most definitely a good thing. There’s just a debate about who should pay for it and how much should they pay.
From the archives…
• Demonstrating that little have changed since, we asked a number of questions in 2006 including 1) should a service charge be added as a matter of course, 2) should tips be pooled? We suggested ‘a tronc system can avoid infighting but it does potentially stifle enterprise, encourage freewheeling and is difficult to police.’
• We asked: ‘should kitchen staff be included?’ The answer is ‘yes’ but, again, this is difficult to police.
• We asked whether ‘the introduction of at-table PIN machines was potentially problematic, with table staff overseeing the customer, who was left to furtively tap in the tip in plain view.’
Developments to date…
• It’s remarkable how little, rather than how, much has changed
• The tipping row a couple of years ago centred around restaurants keeping back some or all of tips meant for staff – but this always was (and remains) a problem.
• Breakages, till shorts and thefts may be kept back. So too an admin charge. But any more than that seems unfair.
RANDOM COMMENT CORNER:
1. See Saga for an example of a recent IPO. Did the vendors think the insurance market was going to get a) easier or b) more challenging when they IPO’d the company. Discuss.
• More heuristics, it’s time we did a book review, comment on CVAs (are we seeing landlord push-back) & other.
GENERAL NEWS – PUBS & RESTAURANTS:
• UK services activity declined in March per the IHS / Markit PMI survey. See Finance & Economics below.
• All you can drink offers back? Café Rouge offers ‘all you can drink’ on beer or Prosecco for £15 per head. That’s an offer the odd rugby club may not be able to refuse. A sign of things to come?
• Other offers. Café Rouge, 25% off food, Bella Italia and Prezzo 30% off.
• Express reports Tim Martin calling Mrs May a ‘loser’ who has surrounded herself with Remainer allies. Mr Martin says ‘it’s not a very nice way to put it but I think she is a loser. She campaigned for Remain and she lost that, she called the election and she lost her majority and now, with all this customs union talk, it looks like she’s chucked that one in as well.’
• Mr Martin says: ‘I have to say I like Boris’. He adds ‘I have to say I don’t think Theresa May is a natural leader.’
• YFoods, the food tech startup community has announced its first ten speakers for London Food Tech Week starting May 20th. The global speakers will be shining a spotlight on 3D printed foods, new meat-alternative foods and reducing food wastage.
• Coaching Inn Group has seen sales increase 24% to £24.7m in the year to 31 March 2019. CEO Kevin Charity said: ‘It’s been another excellent year for the company, and we have achieved a great deal over the last 12 months building on our investment in the estate and our team over the last four years’.
• The Norfolk-based Woodforde’s Brewery has won three beer awards from SIBA, with the group’s Volt IPA being claiming gold in the Premium Lagers & Pilsners category.
• The BBPA has welcomed the House of Lords report on the regeneration of seaside towns, with Chief Executive of the organisation, Brigid Simmonds stating: ‘We welcome this report and its recognition of the leading role hospitality and tourism businesses like pubs can play in the regeneration of seaside towns. To help seaside towns prosper, it is vital that businesses like pubs get all the support they can to drive growth’.
• Commenting on the same Seaside town report, Chief Executive of UKHospitality, Kate Nicholls said: ‘Hospitality has always been integral to the success of seaside towns. Historically, people flocked to the seaside to socialise and relax in our venues from hotels and bed & breakfasts to pubs and restaurants. Hospitality still has a major role to play in the regeneration of our seaside towns’.
• The Arizona based casual-dining group, Kona Grill has warned that its financial performance has deteriorated in Q4, with revenue down 12.4%. The group announced net losses increasing to $32m primarily due to LfL sales falling 12.3%.
• Constellation Brands has stated that it will divest c.30 brands from its wine and spirits portfolio principally priced at $11 retail and below. Bill Newlands, president and chief executive officer of the group said: ‘One of the hallmarks of our success over the years has been our ability to evolve and stay on the forefront of emerging consumer trends’. Constellation Brands has stated it aims to shift focus to premium drinkers as it sells the aforementioned portfolio for $1.7bn.
• Bestway Group has stated that the acquisition of Conviviality’s retail brands, including Bargain Booze, will add around £500 million to its annual revenue.
• Walgreens Boots Alliance warns of the possible closure of Boots stores in the UK as it takes ‘decisive steps’ to reduce costs. The chain said it had suffered its ‘most difficult quarter’ since the firm’s formation, with UK LfL sales down 2.3%.
RECENT IPO SAGA WARNS ON FUTURE PROFITS, CUTS DIVIDEND & GOODWILL:
• Saga warns on profits going forward, cuts its dividend and writes down goodwill.
• Saga, the travel & insurance company for the over-50s, has reported full year numbers to end-Jan saying ‘over recent years Saga has faced increasing challenges from the commoditisation of the markets in which we operate, especially in Insurance.’
• This perhaps raises the question: ‘why did you decide to IPO at that time, then?’
• Saga goes on to say ‘this has had an impact on both customer numbers and profitability. Although Underlying Profit Before Tax for the 2018/19 financial year is in line with our expectations, the long-term challenges we face and the results demonstrate that Saga cannot grow without a clearly differentiated offering to its customers.’
• Saga says ‘today we are launching a fundamental change to the Group’s strategy to return the whole business to its heritage as an organisation that offers differentiated products and services. This will give our customers and members a compelling reason to come to us and stay with us.’
• Saga continues ‘as a result of lower margins in Insurance, a change in approach to renewal pricing, lower reserve releases and investment in new products, Underlying Profit Before Tax for the 2019/20 financial year is expected to be between £105m-120m. Therefore, we have taken the difficult decision to reduce our final dividend and write down goodwill.’
• Saga reports underlying PBT of £180m compared with £191m last year. Basic EPS (after write-downs) is minus 14.5p (2018: 13.1p profit) and the full year dividend will be 4p compared with 9p last year.
HOLIDAYS & LEISURE TRAVEL:
• Agents and operators are reporting unprecedented discounts for the time of year, with the sector fearing a summer price war will break out. Several key industry figures have said the level of discounting has worsened in recent weeks. Baldwins Travel joint managing director Nick Marks said ‘Our message to suppliers is ‘please don’t panic, and don’t discount’.’
• Workers at Glasgow airport have planned a 24-hour strike for 16 April in a dispute involving administrative and security staff.
FINANCE & ECONOMICS:
• The IHS / Markit Service PMI for March signalled a marginal reduction in business activity across the UK service sector during the month. The survey fell to 48.9 in March from 51.3 in February where any number below 50.0 implies contraction. Markit says ‘aside from the brief dip seen after the EU referendum’, the reading is the weakest since December 2012.
• The All Sector PMI indices for March came in at 50.0, down from 51.4 in February. Markit says ‘a drop in service sector activity indicates that UK GDP contracted in March, with the economy stalling over the first quarter as a whole and at risk of sliding into a deepening downturn in coming months.’
• Markit says ‘the underlying picture of demand is even worse than the headline numbers suggest. Service sector order books have contracted at the steepest rate since the height of the global financial crisis in 2009 so far this year, with companies reporting that Brexit uncertainty has dampened demand and led to cancelled or deferred spending, exacerbating a headwind from slower global economic growth.’
• BBC reports workers with higher-level vocational qualifications can exceed the earnings of those with similar qualifications earned at a university level.
• Sterling up at $1.317 and €1.1715. Oil down at $69.28. UK 10yr gilt yield up 9bps at 1.10%. World markets up yesterday with Far East down today.
• Brexit & politics:
o MPs vote by a majority of one to force Mrs May to ask for a Brexit extension. The Lords also needs to vote on the bill before it becomes law. At that point, the ball will be in the EU’s court.
o Where are the red lines now? Brexit means Brexit, red-white-and-blue Brexit, will definitely leave on 29 March, 12 April, 22 May, there will be no extension etc. Mrs May & Jeremy Corbyn are said to have had ‘constructive’ but ‘inconclusive’ talks.
o Mrs May’s appeal to Labour has infuriated the ERG. Mr Rees Mogg says dealing with Marxists is a mistake.
o This is all happening remarkably late in the day. Sky describes Mrs May’s Brexit strategy as ‘undulating’.
o When the history books are finally written, they will make fascinating reading. Mrs May (like a Weeble doll, forever knocked over but won’t lie down) has acted like a PM with a 50-seat majority. Reality is taking over. She called an election, lost her majority etc.
o B of England Governor Mark Carney has said that the chance of a no-deal Brexit is now ‘alarmingly high’. He says there would be an ‘economic shock’.
o The EU would immediately introduce customs checks and import duties in the event of a ‘no deal’ Brexit reports Reuters. The UK would presumably have to do the same.
o Reuters reports that financial firms in Britain are still moving business to new European Union hubs. It says they won’t stop unless Brexit is cancelled
PRIOR DAY LATER TWEETS:
• CAKE comments from KPMG. Won’t pursue Grant Thornton or publish PwC reports. Divi for creditors likely, nothing for shareholders
• KPMG values £29.6m of Pat Val shop fittings, fixtures etc at zero. Highlights importance of Going Concern principle
• Warren Buffett said earlier this week (ref. Lyft) that neither he nor Charlie Munger had taken stock in an IPO since 1955. He’s worth $80bn.
• Warren says stocks should be on a PER of <10x within 4-5yrs. Sure, he misses Google. Also growth path to get to single digit rating should be realistic
• Random comment. If discounting is picking up & costs are rising, mustn’t margins be under downward pressure?
• HotStats reports ‘the UK hotel industry is off to a rough 2019. At least on the profitability spectrum.’ REVPAR growth doesn’t cover costs
• Brexit. Couldn’t run a bath? Talks with Labour 3yrs into the process. 7hr Cabinet meeting to agree to more talks. EU attitude hardening?
START THE DAY WITH A SONG:
Yesterday’s song was Beat Surrender by The Jam. Today who sang:
It’s never enough until your heart stops beating,
The deeper you get, the sweeter the pain
Don’t give up the game until your heart stops beating
TOPICS FOR CONSIDERATION IN PREMIUM EMAIL:
• Thematic pieces including Pubs vs Restaurants, Delivery, Experiential Leisure, Crowd Funding, CVAs, Employment 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:
• Topps Tiles: The pre-close update from Topps Tiles yesterday was well received by the City, with the shares jumping by c7%, but the company made clear that the improved trading in the 13 weeks to March 30th of +1.8% LFL was boosted by around 1.6% by “the effect of weather conditions in the prior year and a later Easter this year”.
• Signet: It is always worth looking at what the American jeweller Signet says about its UK businesses, H Samuel and Ernest Jones, but yesterday’s delayed Q4 results, for the 13 weeks to Feb 2nd, didn’t add anything to the sum of human knowledge, as the weak -7.3% LFL sales outcome was exactly the same as the previously reported trading for the key 9 week Christmas period.
• Superdry: We flagged yesterday that we looked forward to the Dunkerton camp putting their money where their mouth is and topping up their shareholdings in Superdry, after the c9% slump in the price on Tuesday, but, alas, no such support was forthcoming, with brokers rushing to downgrade the stock on the fear of disruption to the business from the management upheaval, and the shares fell by a further c8% at the close…
• Today’s Press and News: The news that the House of Commons voted late last night to legally rule out a “no deal Brexit” came too late for today’s papers, which focus instead on the talks between the embattled Prime Minister and the Labour Party about a “soft Brexit”, with the Telegraph going for “Corbyn in the Brexit driving seat” as its front page headline, whilst the Independent goes for “Pressure grows for second public vote on Brexit”. Otherwise, the upheaval at Superdry gets more coverage, with City AM flagging that “Superdry shares dive after Board exodus”, whilst the FT highlights that “Superdry founder faces struggle to end brand’s arid spell” and Lombard column in the FT notes that both the company brokers resigned as well (“City brokers leave Super Dunkerton somewhat hung out to Dry”). And the Times notes the Sky News rumour that the beleaguered Intu Properties has
• News Flow This Week: There is no more company news scheduled this week, but we wouldn’t be surprised to see an AO World Q4 out tomorrow, whilst #MadMike needs to make his mind up soon about what to do about Debenhams…