Langton Capital – 2019-04-16 – PREMIUM – Existential issues, JDW, discounts, holiday traffic etc.:
Existential issues, JDW, discounts, holiday traffic etc.:
PREMIUM EMAIL – PLEASE DO NOT FORWARD:
A DAY IN THE LIFE:
I’m watching a pigeon eating the blossom from one of our apple trees.
Which is sub-optimal from an apple-harvesting point of view but at least the verminous flying rat is stopping from time to time to poo on our favourite deckchair. No, wait…
So, on reflection, I’m not a big fan of pigeons.
They’re not adding a lot and, though blackbirds have better PR, they’re also messy, dim-witted little animals and one large male has taken it into his head to sit on the wing-mirror of the car and fight with his reflection in the window.
This clearly scares him, literally sh@!tless, as the little blighter empties his bowels down the car door. At which point laziness kicks in, we don’t clean it off regularly enough and look as though we’re sporting a ridiculous non-symmetrical 1980s racing down one door only.
But no, it’s actually corrosive animal excrement. Charming. Anyway, it’s Easter, there’s a bit less news around. Let’s move on to what there is:
A THOUGHT ON EXISTENTIAL RISKS. AND SOMETIMES THE LACK OF THEM. People gotta eat… 16th April 2019:
• We commented last week on existential risks. CAKE (fraud), Indivior (regulatory & legal action) and others (GOAL – the taxman etc.) have brought home that solidity of earnings etc. can be an illusion.
• A bolt from the blue (though rarely really from the blue) can put a business well, out of business. Hence it’s sometimes comforting to think of a few things that will go on. Death and taxes to one side, people will still have to eat.
• We won’t spend too long on it but the excellent Pragma Consulting has been reporting on the embryonic (in the UK at least) furniture market.
• It points out that ‘the increasing transient living arrangements of `Generation Rent’ (the 40% of 25 to 34 year olds who are not able to afford their own property) creates an increasing need for flexible home re-fitting.’
• This is true & it does represent an opportunity for some businesses and a risk for others.
The wider picture:
• Just because a market existed yesterday (or today) doesn’t necessarily mean that it will exist tomorrow.
• Furniture sales are not likely to dwindle to zero – and the retailers may go into the rental market – but, arguably, the skill set is different.
• The move does represent a risk but it goes both ways. TV rental was still a big industry into the 1980s and 1990s but increasingly reliable and cheaper sets put an end to that and Granada and the others have exited the market.
• There’s nothing to say that they won’t come back, though it is a little unlikely.
• Food, however, will never go out of fashion.
A few positive comments about food & drink:
• Ex some sci-fi solution, human beings will always need 2,000 to 2,500 calories per day.
• Which is gratifying for those involved in the industry but complacency is a risk because the methods of delivery are likely to evolve.
• It’s no great revelation to suggest that delivery is disrupting the restaurant market. And supermarkets are having delivery and new-entrant issues of their own but it was they that ended the party for corner shops a few decades ago suggesting that change could be the only constant.
Who’s the talent in the room, where will the money gravitate to?
• Football channels money from eyeballs to players’ pockets. There are many layers to the market (player, club, league, TV companies, digital players etc.) but, ultimately, the talent is the bloke that puts the boots on of a Saturday.
• And the same applies to pop stars, film stars etc. The film studios of the 20s had to bow to player power & the record labels arguably peaked in the 60s and 70s.
• Different channels to market (direct to streaming or Netflix etc.) disrupted life for some – but the players & band members are still there.
• And with food & drink, there are arguably certain things that remain constant.
• The reason to eat is either to stay alive or to socialise. It’s both, of course, but the drivers are different.
• Leaving the off-trade to one side (and accepting that there is a risk that demand will drift from the on to the off trade and vice versa from time to time), the ‘out-of-home’ market is also fragmented.
• Grab & go is about convenience, price & staying fuelled up. The licensed trade is also about convenience & price. But there is more to it than that.
• Langton has said that providing the right product in the right way to the right customers at the right price from the right units is the way to go.
• Sounds simply? Give it a go sometime.
RANDOM COMMENT CORNER:
1. Stating the bleeding obvious. When selling units (JDW, RTN etc), vendors or their agents clearly have to tell one thing to themselves (or their shareholders) and perhaps something a little different to would-be purchasers. It was ever thus. Hence one may be selling units that are ‘fundamentally unattractively positioned’ but they offer a great opportunity to the next guy (presumably to lose some more money).
2. Discounts – a wider issue? These are a major problem. See general email. They should have stopped for Easter. Perhaps the fact that they haven’t indicates a wider issue related to overcapacity.
3. Incentives: Over-targeting LfL sales will lead to discounting. Managers may hit their targets but see 2) and 4)
4. Where’s the road back – discounts? A burglar entering by the back door will unlatch the front in order to provide an exit. It’s hard to take discounts off. Sales will suffer.
5. Where’s the road back – leases? Signing a 25yr, upward only lease with a 15yr (or no) break clause doesn’t provide much of an exit route.
GENERAL NEWS – PUBS & RESTAURANTS:
• CBRE has put another 20 JDW pubs on the market for sale. The parcel, which is available singly or as a lot, comprises ‘15 Freehold and 5 Free-of-Tie Leasehold / Long-Leasehold Public Houses in major town and city centre locations across England, Scotland and Wales. Towns in the North of England include Dewsbury and Rotherham.’
• JDW commented at its last numbers (H1 to Jan) that it was about to sell another few pubs. The group said that there was no typical disposal but that a theme was smaller units in towns where JDW had since bought or built a larger pub. The sites have an average square footage of 5,000 feet.
• Discounts seem to have stepped up a gear in the run up to Easter. Odd as the kids are off school. Toby & Harvester (both M&B) are offering kids’ meals for a quid. Fellow M&B brand O’Neill’s is offering 30% off food. Beefeater (WTB) is 33% off food (or kids eat free) whilst Bella Italia (CDG) is 30% off. Prezzo is 2-4-1 (c50% off), Zizzi is 30% off and Pizza Express is 25% off food.
• Ernst & Young has reported that the number of profit warnings is on the rise. The accountant says ‘protracted uncertainty is taking its toll. The ‘no deal Brexit’ countdown was especially disruptive for businesses exposed to blows to consumer, corporate and investor confidence.’
• E&Y reports ‘it is hard to split out Brexit stresses from mounting global trade and growth concerns’ but it says we have just seen ‘a decade-high in first quarter profit warnings [that] is mirrored in growing restructuring activity, with more companies running out of cash.’
• Trends. With Pragma reporting on the growing Furniture Rental market, we consider in the Premier Email that at least you can’t rent food.
• The farm tray concept Farmer J has announced the opening of a new bar The Shouk near London Bridge. Farmer J Founder Jonathan Recanati said: ‘It’s time for Farmer J to plough the next field, so we’re looking forward to opening our first bar and inviting guests to enjoy long evenings with us over cocktails and tapas inspired plates’.
• The former managing directors of Chiquito and Frankie & Benny’s, Jason Green and David Salmon are opening their second site of the Cock ‘N’ Bull brand in Sutton Coldfield.
• Craft Union Pub Company has opened its 300th pub with The Tivoli Tavern in grimsby.
• Waitrose has launched a new gin tasting experience initiative called Gin O’ Clock, which will allow customers to sample gins in their own home, hired accommodation or office over a two hour course.
• Instagram has introduced a shopping feature within its app in the US.
• Cardlytics has found that overall meal delivery spend in the UK increased by 20% in 2018, with Just Eat surpassing 400m orders in the UK. The report found that the average spend per customer for home delivery is £20.56, compared to just under £20 in physical restaurants.
• Starbucks has continued pushing alternative energy sources with the announcement of a new partnership with solar power developer Cypress Creek Renewables that will see it power 360 Texas-area stores.
• Which? has warned that tens of thousands of fake positive reviews are flooding products from ‘unknown’ brands on Amazon.
HOLIDAYS & LEISURE TRAVEL:
• Abta has found that over three million Brits are planning to get away this Easter.
• Chairman of Aito, Derek Moore has commented that members are in ‘despair’ over the uncertainty caused by Brexit. Moore remarked on a survey conducted by the group: ‘Far more of them responded than is usually the case – this is a clear sign of the fury felt by so many members at the way the politicians of this fair land of ours have managed to upset the voters, the EU in Brussels, and indeed each other’.
• Clia figures show British and Irish cruise passenger numbers hit 2,009,000 in 2018. The UK & Ireland has become the second European market to reach the two million mark after Germany.
• Heathrow reports 6.5m passengers travelled through the airport in March, claiming attitudes towards travel “remain strong” in spite of the lack of clarity around Brexit. Passenger numbers and cargo figures for Latin America continue to rise, as well as a passenger uplift for Africa of 5.8 per cent.
• Gatwick’s COO, Chris Woodroofe, suggests the pre-Christmas drone attack was carried out by someone with knowledge of the airport’s operational procedures. Woodroofe said ‘It was clear that the drone operators had a link into what was going on at the airport.’
• The Daily Telegraph reports the DCMS is looking at whether rules for on-demand video streaming sites should be brought in line with those which apply to traditional broadcasters as part of its digital charter.
• IW Capital invests in PlayMoreGolf, a golf scheme which links individual clubs to offer golfers more choice when it comes to membership options.
FINANCE & ECONOMICS:
• Deloitte has reported that UK businesses are at their most pessimistic about Brexit since the referendum in June 2016.
• Deloitte says 49% of CFOs contacted expecting to cut Capex and 53% expected to hire fewer staff. Deloitte says ‘put mildly, it’s been a turbulent few weeks and there’s been little change in confidence and risk appetite among CFOs, as many priced in a tougher environment at the start of the year.’
• Greece is reported to be looking to repay its debts to the IMF early.
• Sterling little changed at $1.3089 and €1.1575. Oil down a shade at $71.01. UK 10yr gilt yield unchanged at 1.22%. World markets mixed. Far East up this morning.
• Brexit, politics etc.:
o Westminster quiet. Either Brexit has been fixed or all concerned have legged it for a holiday. Or a pint. Or both.
o Talks with Labour go on. FT poses the question ‘is any progress being made?’ It answers ‘who knows?’
o Brexit newbie & aspiring PM Jeremy Hunt has told the Japanese PM that the UK wishes to avoid a no-deal Brexit. He says he hopes the UK can avoid taking part in the EU elections on 23 May.
START THE DAY WITH A SONG:
Yesterday’s song was The Model by Kraftwerk, today who sang:
I wouldn’t if I were you,
I know what she can do
She’s deadly man, she could really rip your world apart
RETAIL NEWS WITH NICK BUBB:
• JD Sports: In its January trading update, mighty JD Sports said that headline Group PBT for the year ended 2 February 2019 would be at the upper end of published market expectations, which currently ranged from £325m to £352m, so the £355m outcome with today’s finals, pre-exceptionals, is no surprise, up 15.5% on the previous year (notwithstanding a 53 week year comparison). There is no trading update, given the distortion from the late Easter, but Pter Cowgill says “we are pleased with the continued underlying positive performance of the Group and are excited by the major developments ahead.
• Card Factory: Poor old Card Factory doesn’t have so much going for it as JD Sports, with underlying PBT down by 7% in y/e Jan, but it is very profitable and some shareholders may be disappointed to see that the ordinary dividend has been only maintained at 9.3p. In the new year, the company is still guiding for only flat EBITDA, despite easing cost pressures, but the CEO says that “we are satisfied with the start we have made”, calling out “record seasonal performances from Valentine’s Day and Mother’s Day”.