Langton Capital – 2019-07-26 – PREMIUM – Vegetarian Meals, Heat Wave, Royal Caribbean Cruises & other:
Fuller’s, Compass, MARS, Diageo, holidays & other:
PREMIUM EMAIL – PLEASE DO NOT FORWARD:
A DAY IN THE LIFE:
We like to Start the Day with a song and, yesterday, it was the dreamy I’m not in Love by 10cc.
It was a bit aging to those of us who remember it, but we thought it was appropriate for the ex-Cabinet Ministers who fell to Mr Johnson’s record-breaking knife yesterday, some of them after weeks, months or even years of dedicated toadying.
Spreadsheet Phil Hammond, Rory (I’m not a spy) Stewart, David Gauke & Greg Clarke chose to fall upon their swords whilst Chris (Fayling) Grayling, Liam Fox and action woman Penny Mordaunt, who all backed Leave, may have believed that their dedication to The Cause was worth more than mere talent.
And Jeremy Hunt may have thought he deserved some sort of payback for making Boris Johnson look good in the recent leadership contest, but it was not to be. He’s in line for a c£70k paycut and a journey trek back up to the Back Benches.
Bits of Langton will be on holiday from today and, indeed, should be on a plane by the time this goes out. The email will be produced as usual though it may be a little shorter at times than usual. On to the news:
WHITBREAD – FOCUS NOW ON THE HOTEL INDUSTRY: Whitbread bounced yesterday after a 3dy losing spell. Post the disposal of Costa and the cash-back, the focus is now very much on UK provincial hotels. 26 July 2019:
The UK hotel market
• Whitbread has been in the FTSE 100 fallers for three days in a row now and has got Langton thinking. After the Costa disposal the company is a hotel-focused business now, with Premier Inn leading its operations.
• Domestic and global brands have poured money into the sector, opening ever-more hotels and widening their development pipelines.
• There are (not altogether pleasant) parallels here with the casual dining market.
The cycle of the market
• The UK hotel market enjoyed rising occupancy, ADR and RevPAR but eventually it peaked.
• Occupancy was the first KPI to flatline and then decrease, but ADR and RevPAR kept on rising, however unsustainably
• There came a crunch where ADR & RevPAR soon collapsed on decreasing occupancy figures. Now all three KPIs are headed downward.
What drove the momentum to flip?
• Basically, these things just happen.
• The sector has become overbuilt, supply is outstripping demand.
• But you can’t ‘just’ take supply out of the hotel sector, these are big, permanent assets.
What does this mean for shares such as Whitbread?
• It would be harsh to label Whitbread a one-trick pony but, that said, it is much more heavily focused on (largely provincial, largely UK) hotels
• The cycle reached its apogee and is now the sector is facing tough headwinds.
• Like most free markets, there is no breaking mechanism – instead there is only a crashing one.
• Oversupply, increasing labour costs and political uncertainty all present challenges.
• Stocks which are primarily hotel businesses could be in for sharp corrections as the cycle turns.
Could there be any winners?
• While the outlook for the sector certainly doesn’t look rosy, there is opportunity to outperform.
• One example of this is the recent success of real or true or retro budget hotel operators, those that undercut the cumbersome mid-market operators (as earlier budget operators are wont to become)
GENERAL NEWS – PUBS & RESTAURANTS:
Diageo is facing a potential summer strike after talks broke down with trade unions in a long running dispute over pay.
Fuller’s commented that more customers are choosing vegetarian and vegan meals at its pubs. CEO Simon Emeny stated: ‘Our food sales have grown by 3.9% on a like for like basis and within this, we are seeing an increasing number of people eating vegetarian or vegan meals more frequently. There is no doubt that consumer lifestyles have changed with customers being more flexitarian – for example electing to have a couple of meat-free days each week’.
Over £1bn worth of food destined for UK supermarkets is thrown away or fed to animals before it leaves farms every year, according to research conducted by Wrap.
Rocket Leisure, the cocktail bar and music venue operator has announced plans to open a fourth site in London this autumn.
OpenTable has updated its iOS app to enable customers to book dinner reservations or have food delivered.
Pizza Hut has announced it will trial cubbyhole sites in the US, that will enable customers to order pizzas and pick them up from locker style holding units, without the need for person-to-person interaction.
The government has announced its intentions to introduce a ‘world-leading’ tax on plastic before 2022.
HOLIDAYS & LEISURE TRAVEL:
Royal Caribbean Cruises yesterday reported Q2 numbers saying that it had beaten estimates & felt able to increase EPS guidance for the full year by about 1.5%.
RCL reports Q2 gross Yields were up 9.4% in Constant-Currency terms, even after a small hit as a result of discontinued cruises to Cuba.
RCL CEO Richard Fain says ‘we are elated to see our brands executing so effectively, keeping our business in an exceptionally strong position.’ Mr Fain adds ‘our core products are doing exceptionally well, driven by a gratifyingly robust demand for the Caribbean.’
Five Eurostar trains have been cancelled and others delayed due to a power failure that left hundreds of passengers without any air conditioning.
Trivago reports Q2 net income of €5.9m compared to a loss of €20.7m in the same period last year. Adjusted EBITDA, was €18.5m compared to last year’s loss of €17.1m in Q2. Rolf Schromgens, chief executive and founder of Trivago, said ‘This quarter, we worked closely with key advertisers to provide more flexibility over how they bid on our platform.’
The appointment of new transport secretary Grant Shapps has been welcomed by Airlines UK, urging him to push ahead with Heathrow’s third runway.
The number of flights handed by NATS in the UK increased by 0.8% yoy in June to 242,248. There was growth in many areas of the operation, in particular in non-transatlantic international overflying traffic.
Radisson Hotel Group signs the Radisson Blu Serviced Apartments, Larnaca, Cyprus. The property will become the third from the company in the city.
Tesla reports larger than expected $408m loss in Q2, sending its shares down by more than 11% after-hours trading on Wednesday.
FINANCE & ECONOMICS:
• Brexit & politics:
The Telegraph speculates that new Chancellor Sajid Javid could be planning a giveaway. Mr Johnson has promised ‘better education, better infrastructure, more police, fantastic full-fibre broadband sprouting in every household.’ He has also promised to cut taxes for the better off.
The FT is speculating that an October election is still possible, despite the fact that new PM Boris Johnson has ruled it out.
START THE DAY WITH A SONG:
Yesterday’s song was 10cc with I’m Not in Love. Today who sang:
Eisenhower, vaccine, England’s got a new queen,
Marciano, Liberace, Santayana goodbyeFINANCE &
RETAIL WITH NICK BUBB:
Findel Watch: You’d have thought that Sports Direct would have enough on their plate without stirring up even more trouble elsewhere, but they were up to mischief again yesterday, voting their c37% stake in the home shopping company Findel (which has a market cap of £206m) against the re-election of the FD at the AGM, for reasons which are too obscure to go into (the resolution was still passed). The Board also confirmed that the company’s name will change to Studio Retail Group after registration at Companies House and that trading in the company’s shares under the new name will commence shortly, with the memorable ticker STU.L.
Mothercare: We’re still waiting for the promised Sports Direct finals this morning, but in the meantime Mothercare has come out with its Q1 trading update ahead of its AGM today. And, although “strategic progress continues”, trading continues to be difficult for both the UK and the International businesses. In the UK LFL sales were only 3.2% down in the 15 weeks to July 13th, but the promised margin recovery hasn’t arrived because promotional activity has had to be stepped up, whilst in International sales were down by 4.5% in constant currency terms, dragged back by an 11.1% slump in the key Middle East market. As a result the company has warned that full-year profitability is expected to be no better than last year, but it continues to enjoy the support of its banks and is exploring a restructuring of its UK operations into a franchised business.
News Flow Next Week: A busy week kicks off with the embattled Hammerson’s interims on Monday. On Tuesday we get the Games Workshop finals, the Greggs interims and the Apple Q3 in the US. Wednesday brings the monthly GFK Consumer Confidence survey and the Next Q2 update, along with the beleaguered Intu Properties’ interims, the Dignity interims, the Travis Perkins finals and the Halfords AGM. On Friday we then get the Pets at Home Q1.