Langton Capital – 2019-08-19 – PREMIUM – Inbound tourists, outlet numbers, big ticket etc.:
Inbound tourists, outlet numbers, big ticket etc.:
PREMIUM EMAIL – PLEASE DO NOT FORWARD:
A DAY IN THE LIFE:
So, what could be quieter than a week in a hot and sticky London in mid-August?
Well a week in the same place in late-August that ends in a Bank Holiday weekend is the obvious answer and, with nothing concrete on the horizon, we may be pushed to find something more interesting to investigate than the task that kept us busy last Friday.
And that was looking into just who’s toothbrush had been left in the bathroom of the flat where it had been gathering dust for weeks or, much more likely, months?
There we quickly concluded that we didn’t care, and we threw it in the bin and then we wished we’d dragged it out a bit because the rest of the day was much less exciting.
With apologies to those who are working hard dealing with real events and various work crises, let’s move on to the news:
BOOK REVIEWS: ONE UP ON WALL STREET – FIDELITY’S PETER LYNCH: Peter Lynch was a Fidelity star. But was he a genius or was simply in the right place at the right time? Or was it a bit of both? 19 Aug 2019:
• Peter Lynch’s book, full of common sense as it is, was seen as a milestone. He writes in a style not dissimilar to Warren Buffet. He makes it sound simple – but it isn’t easy. The book is a little unstructured but here are some of the main points.
• Mr Lynch points out that, when running a portfolio, getting six out of ten stocks right is all it takes to create an enviable record on Wall Street.
• He suggests one should stand by one’s stocks as long as the fundamental story of the company has not changed
• We always fight the last battles. The next time is never identical to the last.
• Mr Lynch categorises stocks. Slow growers can be useful if they pay a good dividend. Stalwarts include branded majors such as Coca-Cola, P&G and Colgate. Here he expects high single digit to low teens growth.
• Fast growers have plenty of runway left. Spotting them (without the benefit of hindsight) is tough. Valuing them is tougher still.
• Cyclical stocks can be very profitable. Timing is key.
• Turnarounds can be very rewarding. Again, timing is key.
• Asset plays may need to be broken up. Beauty is in the eye of the beholder and the ‘beholders’ may be thin o the ground. Patience may be necessary.
• Mr Lynch likes boring companies with boring names doing boring things. High growth and hot industries attract a smart crowd and valuations can be high. Exciting stories can crash.
When to sell?
• Slow growers may be a hold. Sell if the fundamentals change. Or if the price moves beyond a reasonable level. Defining that will be tough.
• Stalwarts ditto.
• Cyclicals are tough to call but doing so correctly is very profitable. Watch inventory levels. They may be a lead indicator as to demand.
• Fast growers can punish loyal shareholders if they do not exit in time. This is an easy one to sell too early. But that would be better than selling too late.
• Turn arounds should be sold after they have turned around. Valuation will still be tough. Holders may have to leave something on the table for the next guy.
• Asset plays should be sold when the world and its dog knows about the value of the assets.
• Stocks can always fall further. A stock that falls by 90% is one that fell by 80% first – and then halved.
• Mr Lynch says most of the money he makes in shares is in the third of fourth-year of ownership
• He says you can make serious money by compounding a series of 20 to 30% gains in stalwarts. You don’t have to knock every ball out of the park
• Just because the price goes up doesn’t mean you are right & just because the price goes down doesn’t mean you’re wrong.
• Don’t buy bad companies because they are ‘cheap’. They may get cheaper.
• Expensive companies can become much, much more expensive.
• Don’t get overly attached to stocks.
• There is always something to worry about.
• You don’t have to bag every winner. Just enough of them to make a real difference.
GENERAL NEWS – PUBS & RESTAURANTS:
• Some suggestions from High Street F&B operators that London is busy with tourists. No comment from Merlin nor Premier Inn & the like but weak Sterling could / should be helping footfall.
• Discounts: Zizzi 30% off mains, Prezzo 20% off food, Toby (M&B) kids eat for a quid.
• The latest Market Growth Monitor from CGA and AlixPartners reports that 18 restaurants a week have been closing in the year to June 2019. This is in addition to closed pubs and other on-trade premises.
• The Growth Monitor suggests that Italian, Indian and Chinese restaurants have been bearing the brunt of the closures.
• The Growth Monitor reports that the number of licensed premises in the UK as a whole (pubs, restaurants & clubs) fell by 2.4% to 117k in the year to June 2019. The rate of closure for pubs and bars, at 2.0%, was lower than that for licensed premises as a whole.
• CGA & AlixPartners report ‘Britain’s supply of licensed premises is continuing a steady decline. At June 2019 the country had 116,880 pubs, bars, restaurants and other licensed venues—2.4% or 2,920 fewer than 12 months earlier, and equivalent to exactly eight net closures a day.’
• The Growth Monitor highlights the big shift away from leased pubs over the last 12mths saying that the number of leased drink-led pubs fell by ‘exactly a quarter (25.0%) since June 2014, and by 5.7% in the last 12 months alone.’ The Monitor maintains that the number of managed houses has risen by 18.0% in five years’. It maintains that ‘most leased pubs that have closed have not reopened.’
• Christie & Co has announced that it has completed on the sale of a portfolio of 18 pubs on behalf of Wadworth to national pub company, Red Oak Taverns. Red Oak says ‘we are delighted to have secured this quality portfolio of pubs from Wadworth. We believe that the pubs and the licensees will benefit from Red Oak’s flexible approach to operating leased and tenanted pubs and from the £1m of investment we have planned for the acquired portfolio.’
• London Union has reported to Companies’ House that 20% shareholder Henry Dimbleby has ceased to be a director of the company. Mr Dimbleby remains a major stakeholder in London Union but he has recently commited to undertake a year long investigation into National Food Strategy at the request of the then environment secretary Michael Gove.
• Meat Liquor has reminded customers that 22 August is National Burger Day. It is offering 20% off to selected contacts with Jaeger Mules at £3.00 each.
• US craft distillery Mountain Laurel Spirits has seen its sales fall by 10% due to retaliatory tariffs placed on US whiskey by the EU. Mountain Laurel’s owner, Herman Mihalich commented: ‘We went from a marginally profitable business to breaking even’.
• Jamie Barber has restructured Brazillian casual dining chain Cabana. He is reported to have bought the restaurants out of administration and absorbed them into his Hush Brasseries business.
• UKHospitality has welcomed the Government’s consultation on England’s food industry, with Chief Executive Kate Nicholls commenting: ‘The changing political, technological and environmental landscapes mean that challenges are constantly evolving. Businesses and customers are ever more interested in issues such as sustainability, provenance and health. A progressive and responsive food industry is therefore a must’.
• Canopy Growth, the Canandian cannabis company has reported a net loss of C$1.28bn this quarter, causing the group’s shares to fall 10%.
• Paul UK, the French bakery chain, has seen LfL sales increase 3.4% during 2018, with total revenue up 7.4%.
• The FT has reported that the plant-based meat alternative companies, Beyond Meat and Impossivble Foods have reached a value of $9bn and $2bn respectively.
HOLIDAYS & LEISURE TRAVEL:
• KPMG has reported that 22% of Britons have avoided big ticket purchases because of Brexit uncertainty. The account says that overseas holidays have suffered significantly. KPMG says ‘these figures bring to light just how much Brexit has impacted people’s everyday lives. We can see this in the way that people are delaying significant purchases such as new cars or foreign holidays.’
• KPMG says ‘when looking at travel and holidays in particular, fears around flight paths and border controls are clearly playing out in people’s actions, and of course the fall in the value of sterling won’t have done much to entice people overseas either. For these consumer businesses, the focus has to be on remaining agile so as to ride this wave of uncertainty.’
• On the bright side, KPMG says ‘those that can achieve this may even benefit from pent-up demand when clarity finally does return to both businesses and consumers.’
• FT runs a story today on DART (Jet2)’s continued success against a backdrop of tough trading for competitors Thomas Cook & TUI.
• Research from UKinbound Business Barometer has found that 75% of member businesses have seen bookings and visitor numbers for May and June at the same level or higher than last year.
• US hotel industry growth forcasts have been downgraded to 1.6% for 2019 and 1.1% for 2020, according to data from STR.
• CBRE has also lowered its US hotel sector growth forecasts, with RevPAR projections at +0.9% for 2019.
• Choise Hotels data breach may have affected 700,000 customers, with the company commenting that the breach: ‘did not contain payment, password or reservation information,’ but did include ‘some guest contact information, including names, addresses, phone numbers and/or email addresses’.
• Twitter has invested in the Indian social media platform ShareChat, valuing the company at $650m.
• Moody’s reports that Viacom Inc’s agreement to merge with CBS means that it has put Viacom’s ratings on review for upgrade. It says the deal is ‘moderately credit negative for CBS.’
FINANCE & ECONOMICS:
• The US Fed says it may be necessary to cut rates to head off an economic slowdown. The White House has separately said that there is no recession on the horizon.
• German Finance Minister Olaf Scholz said over the weekend that he expected interest rates to remain very low for ‘the next few years’.
• Sterling up at €1.0959 and $1.2156. Oil up at $59.33. UK 10yr gilt yield up to a still-negligible 0.47%. World markets all higher on Friday, Far East up in Monday trade.
• Brexit & politics:
o A leaked government study warning that there could be problems with the delivery of medicines & food post Brexit has been called a ‘worst-case scenario’ by cabinet minister Michael Gove.
o Mr Gove says that no-deal preparations have been accelerated since the dossier was prepared. Mr Gove said, however, that there would be ‘bumps in the road’. He says the UK government ‘is far more prepared now than it was in the past.’
o The dossier says food could become less readily available and prices could rise. A hard border in Ireland would likely be necessary. Fuel could become scarce & there may be travel delays etc.
o PM Johnson will meet with German & French leaders later this week.
o German Chancellor Angela Merkel said over the weekend that Germany is preparing for a disorderly Brexit.
START THE DAY WITH A SONG:
Last Friday’s song was Lets Get it On by Marvin Gaye. Today who sang:
This is going to take a long time,
And I wonder what’s mine
Can’t take no more
Wonder if you’ll understand
RETAIL WITH NICK BUBB:
• Saturday’s Press and News: The news that Next will take over the Ted Baker kidswear licence from Debenhams next spring created some decent photo opportunities for the Times (“Next will be a better fit for our children’s range, says Ted Baker”) and the Daily Mail (“Ted Baker dumps Debs for Next in clothing deal”). Otherwise, the Saturday papers were a bit thin in terms of Retail news, although the Daily Mail highlighted that short sellers latched on to a report from UBS that ASOS will be one of the major victims of an Online sales tax and it also flagged that Poundland’s parent company in Europe is looking at an IPO or private equity sale plan. The Times noted the angry response from small haulage companies to comments from Simon Wolfson of Next that they should just get their lorries “out of the way” to avoid disruption at ports after a no-deal Brexit…and the market report in the Times
• Sunday’s Press and News (1): The focus on a no-deal Brexit continued in the Sunday papers, with the Sunday Times leading its Business front page with the story that Lidl has warned grocery suppliers to its Irish business that they will be expected to pay the cost of EU import tariffs after a no-deal Brexit. The Sunday Times also had several other Retail stories: the embattled Philip Green is close to settling the legal challenges from US Top Shop landlords to his Arcadia CVA, the anti-virus software business McAfee is suing Dixons Carphone over the flouting of a promotional agreement, the much-travelled John Colley is leaving Kingfisher (where he is Chief Trading Officer) to return to Majestic Wine and there are doubts about the health of Philip Day’s shadowy retail empire, the Edinburgh Woollen Group, after changing the financial year-end of the business (quoting our view that this is
• Sunday’s Press and News (2): The Sunday Telegraph flagged that the race to succeed Mike Coupe as CEO of Sainsbury’s has begun, with John Rogers of Argos facing internal competition from the Retail Director John Roberts and the Commercial Director Paul Mills-Hicks. The Sunday Telegraph also highlighted that the struggling tea chain Whittard’s has promoted its FD to run the business and it had a feature on the proposed merger of the two struggling Online mattress companies (“Eve and Simba cosy up in bid to end mattress nightmare”). The Business Leader column in the Observer thundered that “Only Sports Direct could create such drama from the audit process”. Finally, the Mail on Sunday highlighted that even Tesco’s own brokers, Barclays, are cautious about the upcoming Q2 sales figures.
News Flow This Week: Apart from the Laura Ashley final results on Thursday, there is no company news scheduled for this week, ahead of the Bank Holiday weekend, but the latest monthly Kantar and Nielsen grocery sales figures are out at 8am tomorrow morning.