Langton Capital – 2019-04-05 – PREMIUM – Capital allocation, overseas hols, meat free meat, GVC etc.:
Capital allocation, overseas hols, meat free meat, GVC etc.:
PREMIUM EMAIL – PLEASE DO NOT FORWARD:
A DAY IN THE LIFE:
The City has changed quite a bit regarding dress code and the like over recent years.
I mean I wear a tie perhaps two or three times a month now, having worn one virtually every day, not including university, for about 40 straight years before recent times.
And not necessarily having to shave every day is a boon.
Not that I want to look too straggly as I’m not the most attentive shaver at the best of times and, if you’ve got a few days’ worth on your face and you miss a bit, you look either like a homeless person who’s found a razor in the gutter or some middle-aged wannabe hipster with a very strange sense of fashion when it comes to facial hair.
So we’d better buy an emergency razor to keep in the office but having a suit crumpled in the corner of the office, even if it gets used as an ersatz pillow from time to time, is arguably better than having to wear one daily. On to the news:
THE FREE MARKET – IT’S GREAT, BUT, LIKE DEMOCRACY, IT’S A QUESTION OF DEGREE – 5th April, 2019:
• The free market generally allocates capital where it can best be used. But, as with many absolutes, there are problems. Contract murderers, drug dealers, pimps and the rest would be plying their trade openly in a perfectly free market.
• Most people would agree that wouldn’t be ideal but where should interference stop? Libertarians are at one end of the debate and Marxists may be at the other. Here we just look at the allocation of capital in the leisure market, specifically, the licensed food & beverage market.
The movement of capital:
• Capital can flood into an industry, but it rarely floods out.
• Once established, industries tend to decay rather than collapse. There are careers, vested interests, reputations & bricks & mortar to protect.
• Growth areas are often not a secret.
• The internet (witness the dot.com boom) is one of the more obvious examples and the problems being faced by the UK’s casual diners is partly a result of overcapitalisation and the rising costs (of labour, rent etc.) that that has caused.
• We’ve written on the casual diners a number of times, but we would also suggest that experiential leisure, whilst in secular growth, could be a tricky area in which to make money at the micro level.
• Consumers, particularly younger consumers, seem to have enough ‘stuff’.
• They hence look to experiences and Instagram & other social media platforms profit from this and the FOMO (fear of missing out) that it fosters.
• We would suggest, therefore, that companies selling experiences could, indeed should, prosper.
• However, that may be truer at the macro than the micro level. The industries may prosper but the individual companies may not.
A quick snapshot:
• Taking Time Out and Dinerama as experiential companies alongside the more obvious ping-pong, darts & golf operators, gives us a pretty small but useful base of companies to look at.
• Indeed, ten to a dozen companies stand out but, unfortunately, only one of them currently makes a profit.
• Taking the companies in aggregate, we have yearly losses of over £20m (skewed by Time Out, it has to be said) on revenues of perhaps £100m.
• Accumulated losses are over £30m and shareholders’ funds are near to zero meaning that new capital is going to be sucked into this space – otherwise there won’t be a space at all within a very short period of time
A few words of encouragement. And caution…
• You have to be in it, to win it
• And there probably will be winners but would-be investors should ensure that they are not suffering from FOMO themselves
• Also, we would suggest, there may be a ‘second mover advantage’ here
• Let the young bucks splurge money down a hole and then step in later? Maybe.
THE OVERSEAS HOLIDAY COMPANIES. A SERIES OF BODY-SHOTS – 5th April, 2019:
• I’m no boxer but head shots could be overrated, it may be body shots that do the damage. Less visible damage like rescheduling aircraft, dealing with erratic booking patterns, writing off or discounting Easter, cutting prices for the summer etc. Then, maybe, Brexit will be kicked down the road and the 737s will get back in the air but has the damage already been done?
A little more on the current situation:
• Brexit is the biggest single issue but problems with Boeing and a Europe-wide economic slowdown have also combined to worry tour operators
• Not that you’d know it from some of the public pronouncements
• But travel agents are notoriously optimistic and, in many cases, they may not be aware how seriously (or hopefully otherwise) holiday rescheduling, cancellations and delayed bookings are hurting the P&L
• Putting aside the possibility that the stock market behaves like a Keynesian beauty contest here (guessing what other people are guessing other people are going to do), we would suggest that too sharp a bounce on a Brexit postponement or a resolution of Boeing’s problems could be misplaced
• More heuristics, it’s time we did a book review, comment on CVAs (are we seeing landlord push-back) & other.
GENERAL NEWS – PUBS & RESTAURANTS:
• Burger King is considering bringing the meat-free ‘impossible whopper’ to the UK following a successful trial of its vegan option. A spokesperson from the firm said: ‘Following the launch of our meat-free whopper trial in the US, we know there is a huge appetite for alternative options to meat here in the UK. We are currently exploring opportunities to bring a meat-free burger to the UK’.
• The groups that rescued Gaucho, Investec and SC Lowy have agreed to buy the London based M Restaurants.
• BrewDog has announced plans to open a craft beer hotel in London, with the group stating: ‘The DogHouse London will be nothing short of the ultimate hotel for craft beer geeks. As such it will have its own craft beer museum like our hotel in Columbus where you’ll be able to check out the exhibits before you check out’.
• The British Institute of Innkeeping has begun searching for a new COO after outgoing Mike Clist looks to retire. Mark Robson, Chairman said: ‘It is really important in any organisation that a good succession plan is in place. Mike Clist came to the BII 3 years ago with the intention of staying for 3-6 months while they sought a new CEO’.
• Dutch food delivery company Deliverect has raised €3m to expand its platform to the UK. Deliverect provides connection for delivery platforms such as Uber Eats, Takeaway.com and Foodora to the point of sale (POS) systems of restaurants.
• Switching from smoking to vaping has contributed to a £1.1bn saving for smokers, with many feeling healthier and seeing improvements to their social lives. A poll from OnePoll found that vapers are saving on average £235 per year by making the change.
• AO World has stockpiled around £15m worth of its most popular products to mitigate any potential Brexit supply chain delays.
• UKHospitality has warned against the introduction of a late-night levy in Redbridge, with Chief Executive Kate Nicholls commenting: ‘It is fairly dispiriting to still be having a conversation on the levy in 2019. A comprehensively damning Parliamentary report in 2017 highlighted its flaws, outlined its ineffectiveness and called for its removal’.
HOLIDAYS & LEISURE TRAVEL:
• Saga has stated that Brexit is putting a ‘clear dampener’ on consumers’ willingness to commit to holidays in 2019.
• Saga shares fell 37% to an all-time low of 67p as the Grand Old Duke of York shares explored the downside of the hill. Alongside Quiz, Bon Marche, Revolution and of course Pat Val, it demonstrates that some IPOs can go better before their business model trips them up and they go worse. See 27 March Premium email.
• Iata, the airline trade body has blamed Brexit uncertainty for causing weakening global passenger demand in February. Iata director general and CEO Alexandre de Juniac said: ‘After January’s strong performance, we settled down a bit in February, in line with concerns about the broader economic outlook. Continuing trade tensions between the US and China, and unresolved uncertainty over Brexit are also weighing on the outlook for travel’.
• ForwardKeys reports Brexit uncertainty has caused EU bookings to Britain to ‘plunge’ with ‘Summer bookings from the UK to EU countries lagging 4.6% on last year…Spain is currently 7.0% behind on UK summer bookings compared to last year. Greece is 2.7% behind, Cyprus 6.9% behind and Portugal 10.6% behind.’
• The European Parliament has confirmed that UK citizens will not need a visa to travel to the EU for short stays after Brexit, even in the event of a no deal. UK citizens can travel to the EU for up to 90 days within a 180-day period without needing a visa in November.
• Gloria Guevara, president & CEO of the WTTC, says travel and tourism is ‘the best industry partner for governments…Our sector will generate 100 million jobs over the next decade, meaning one in four new jobs will be thanks to travel and tourism.’ International travel and tourism grew by 3.9% last year compared with 3.2% growth in global GDP.
• Greece will implement new ‘systematic passport checks’ on travellers to and from destinations outside the Schengen area, including the UK. The Foreign and Commonwealth Office issued an updated travel advisory for Greece to warn of possible delays.
• Eurostar plans to introduce a third daily service from London to Amsterdam from 11 June after more than 250,000 people used the service in its first year. Eurostar CEO Mike Cooper said ‘Our new service linking London with the Netherlands has got off to a great start, with sales beyond our expectations.’
• STR has reported that US hotels saw occupancy increase 4.2% to 69.5% during the week 24-30 March while ADR climbed 0.9% to $131.77 and RevPAR rose 5.1% to $91.53.
• GVC has updated on trading saying it has had ‘an excellent start to the year’. The global sports-betting and gaming group reports online net gaming revenue up 17% in Q1 with total group net gaming revenue up 8%.
• GVC CEO Kenneth Alexander says ‘this trading update reflects a continuation of the strong trends reported on 5 March 2019, and represents an excellent start to the year. We continue to see good volume growth across all major online brands and territories and we remain very confident of achieving our target of double-digit online NGR growth.’
• GVC says ‘the impact of soft gross win margins in Italy and the UK was offset by improved margins in other territories, demonstrating the benefit of both geographic and product diversification across the Group. In UK Retail and European Retail, improved sports wagering growth helped offset softer sports gross win margins. New B2 machines stakes restrictions were implemented in the UK on 1 April 2019 and we expect it to be several weeks before we can start to assess the impact.’
• GVC concludes ‘at this early stage of the year, the Board is confident of delivering EBITDA and operating profit in-line with expectations.’
• Tottenham Hotspur report pre-tax profit of £138.9m, more than double the year before. The team has just moved into its £1bn new stadium.
• The PlayStation game, God of War has been named the Best Game prize at the 15th annual Bafta Games Awards.
• Amazon.com Inc has confirmed its plans to build a network of over 3,000 satellites through ‘Project Kuiper’ to provide high-speed internet.
• Tesla share price has fallen nearly 9% following a profit warning that showed vehicle deliveries decline 31% in Q1 2019.
FINANCE & ECONOMICS:
• Sterling down a little at $1.3095 and €1.1663. Oil little changed at $69.27. UK 10yr gilt yield down 2bps at 1.08%. World markets: UK down yesterday with Europe & US higher. Far East mixed in Friday trade.
o Talks between Labour & Mrs May’s number 10 continuing. Chancellor Phillip Hammond suggests a ‘flexible’ delay could work best. BBC reports Donald Tusk not averse to that idea. Geoffrey Cox has told the BBC that any delay is likely to ‘be a long one’. Hardly speaking with one voice.
o FT reports Labour talks may just be to give Mrs May some ‘cover’ ahead of next week’s meeting with other EU leaders. Labour being warned of a trap.
o EU main issue is the legality of the European parliament if the UK remains a member but does not take part in the May elections. This makes UK elections very likely.
o No indicative votes planned for Monday. Mrs May to meet EU leaders to ask for another extension.
o Sky reports planners expect huge queues at Channel ports in the event of no-deal. Sky reports cereal farmers telling it leaving the EU with no deal would be ‘catastrophic’.
PRIOR DAY LATER TWEETS:
• Grey Dawn, mature customers. They got time, they got money. But it’s no secret. There’s competition for their cash. See Premium Email
• Comments on Tipping from the archive. Plus ca changer? Was, is and probably always will be a hot topic. See email.
• Saga, a recent IPO. Did the vendors think the insurance market was going to get a) easier or b) more challenging when they took money from new investors?
• All you can drink offers back? Café Rouge offers ‘all you can drink’ on beer or Prosecco for £15 per head. Rugby Club challenge if ever we heard one!
• Tim Martin calls Tory leader a ‘loser’ who should stand down. He fancies Boris.
• Agents & operators reporting unprecedented discounts for the time of year on summer holidays.
• Saga price collapses as ‘Grand old Duke of York’ IPO heads down the hill. See Premium Email for comment on IPOs in general
START THE DAY WITH A SONG:
Yesterday’s song was Shellshock by New Order, today who sang:
I thought love was more or less a giving thing,
Seems the more I gave the less I got
What’s the use in tryin’
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:
• AO World: The AO World Q4 update yesterday disappointed the market yesterday, with the shares tumbling c6% in reaction to the news that although revenues were in line EBITDA would be below market expectations.
• Mothercare: The Mothercare Q4 update yesterday was brought forward a week and although the message was that full year profits would be in line with expectations, the market was disappointed to hear that International Retail sales in core markets were down 5.7% in constant currency (driven primarily by economic and trading challenges in the Middle East) and that the International outlook for the new year was “challenging”.
• Today’s Press and News: The FT goes to town on the news that the beleaguered Intu Properties shopping centre company has chosen its CFO, Matthew Roberts, to be its new CEO, promoting Lombard column to thunder that “When it takes eight months to appoint a new chief executive, but the eventual choice is the long-serving finance director, what does it say about the job?” (“Who wants to be a landlord to Mike Ashley or Philip Green?”). Lombard column in the FT also mocks the AO World profit warning, given its reliance on European white goods, and the famously anti-European ERG MP Mark Francois (“AO, R U OK re: EU?”). The Telegraph also notes the AO profit warning (“AO World warns of extra costs after founder reshuffles team”). The Times flags the weak SMMT new car sales figures for March, as well as the weak Mothercare Q4 sales figures.
• News Flow Next Week: The Brexit madness continues next week, with both the main parties split on how to avoid the UK’s scheduled departure from the EU on April 12th without a deal, whilst #MadMike needs to make his mind up soon about what to do about supporting the Debenhams refinancing…Otherwise, we get the BRC-KPMG Retail Sales survey for March first thing on Tuesday (with the outcome bound to be significantly depressed by the later fall of Easter). Wednesday brings the Tesco finals, the ASOS interims and the Dunelm Q3, whilst on Thursday we get the WH Smith interims.
• Weather Watch: It has turned cold recently, but memories about “the weather” are always notoriously short-term and often too London-centric…so we turned to the Retail weather consultants Planalytics for their regular monthly overview of how last month’s weather “should” have affected trading on the High Street across Great Britain…And their overview for the calendar month of March was headlined “Comps Surge vs Last Year”, flagging “Strong Spring Temps vs Last Year’s Wintry Weather”. High pressure dominated western and northern Europe for much of the month, resulting in well above normal temperatures across Great Britain. This was in stark contrast to last year when winter went out with a bang. Whereas March 2018 was the 13th coldest March of the post-war period (with an average temperature of 3.9° C, this year was the 11th warmest, at 7.6° C, almost a full 2 degrees C above the
• Trade Press: Retail Week magazine has not been published this week, but last week’s edition came out on the back of the annual Retail Week Live conference and featured a large photo of the estimable Next CEO, Simon Wolfson, on the front cover, to flag the main feature on “Where Next for retail? Wolfson on how the industry could look in 15 years”. Drapers magazine is out today, however, and the main News story is that Debenhams’ suppliers have been “left in the dark” about the company’s restructuring plans and fear for the future. Drapers also flag that JD Sports has beaten off Sports Direct to buy the assets of the bankrupt Pretty Green clothing business and that the Mint Velvet fashion chain has been bought by the Lewis family trust, of River Island fame. In terms of features, Drapers interview the new CEO of Crew Clothing, David Butler, and also look at the implications of the
• BDO High Street Sales Tracker: We flagged on Wednesday that sales at John Lewis were hit yet again last week by the calendar shift of Mothering Sunday/Easter, but the BDO High Street Sales Tracker for medium-sized Non-Food chains for last week, w/e Sunday March 31st was fine. BDO Fashion Store sales were up by 9.1% LFL (including Online), helped by better weather and Total BDO LFL sales (including Homewares and Lifestyle sales) were up by 8.4% last week (down by 0.4% in Store sales and up by as much as 48.8% Online).