Langton Capital – 2019-08-23 – PREMIUM – Markets, footfall, retail sales, UK holidays etc.:
Markets, footfall, retail sales, UK holidays etc.:
PREMIUM EMAIL – PLEASE DO NOT FORWARD:
A DAY IN THE LIFE:
Having recently read a Jeremy Corbyn bio alongside several economic and political histories of the mid to late-1970s to see what makes him tick, it seems that extreme-left wing politics is plagued by infighting of the Judean People’s Front vs The People’s Front of Judea type in The Life of Brian.
The result being that even reading about it is exhausting so heaven help the participants as they must expend so much energy in second-guessing and out-manoeuvring each other that they have nothing left when they have to face the enemy.
Anyway, whilst reading books about Jeremy, 1970s economic collapse and Brexit might not be designed to put you in a good mood, the upcoming sunny and hot Bank Holiday Weekend perhaps will. On to the news:
BOOK REVIEW: YOU CAN BE A STOCK MARKET GENIUS – JOEL GREENBLATT. Mr Greenblatt has since said that he should have given the book a different title. And we agree because, putting the title to one side, he makes some interesting points. 23 Aug 2019:
• Joel Greenblatt is perhaps best known in his role as the founder and boss of hedge fund Gotham Capital. He’s made a lot of money over the years.
A few basic pointers:
• Mr Greenblatt does not believe in efficient markets. He says large funds have to hold too many stocks. He believes that 96% of non-market risk is gone if you hold just 32 stocks
• If markets are inefficient (and look at the high-low shareprice for any share – both numbers can’t be ‘efficient’), then you need to find where the inefficiencies are and take advantage of them
The role of analysts:
• The underperform as 1) they have too many buy recommendations, 2) they may only be knowledgeable in one sector and lack a breadth of vision, 3) they don’t mind being wrong in a crowd and 4) they don’t cover small caps where there is no revenue
• Charlie Munger would suggest you look at their incentives
Why get involved:
• You should play the game only where you are doing so off a low handicap.
• He goes into the maths. Says you don’t need too many stocks: Just 8 holdings would come within a whisker of the performance range of a portfolio 100 times as diverse
• He says analysts misprice risk as they define it as volatility – a poor stock may have fallen already
• Greenblatt runs through Walter Graham’s idea of Mr Market – he said ignore the market unless it is too high or too low
How shares perform:
• Greenblatt maintains that good companies tend to become overrated and bad companies fall too far
• He says spinoffs tend to go up. The spun off stock may be sold without regard to value & hence offer opportunity. Management subsequently seem to try harder. However, it may take two years for the performance to come through.
• It can make sense to go for the less fashionable company on a split
• Check management incentives.
• Greenblatt says that the returns on risk arbitrage are too low. It is (or was) a crowded market. Players are picking up nickels in front of a steamroller.
• Bankruptcy can be interesting but it’s a specialised market and the vulture funds already know whay they’re doing
• Post bankruptcy can be interesting. This is more common in the US as companies come out of Chapter 11. He says post-Chapter 11 stocks can be ‘orphan equities’ – no broker, no commissions, no research etc. Opportunities arise
• Greenblatt agrees that selling is tougher than buying. It’s easier when there’s a definable ‘event’. He says sell the bad, keep the good
• Corporate Restructurings can allow the true value to come out – e.g. selling a division doesn’t come naturally to management so they may have shareholder interests at heart
• Share buybacks use leverage & the tax deductibility of interest in your favour – but it does raise risk
• Greenblatt says it’s better to do a lot of work on one idea rather than a little work on a lot of different subjects
• Easy for a billionaire to say but Greenblatt says that investing should be fun
GENERAL NEWS – PUBS & RESTAURANTS:
• Having popped out most nights this week, Langton has come to the conclusion that there’s something to be said for not opening some city (and certainly City) pubs on a Sunday and a Monday nights.
• Because the J curve regarding revenue is ferocious. Tuesday shows signs of life, Wednesday is the hump and Thursday is the weekend. We’d be surprised if any more than 2% of the weeks’ takings come in on a Sunday and not much more than double that on a Monday.
• The CBI has reported that British retail sales dropped in August at the fastest rate since 2008. The balance of retailers reporting rising to falling sales volumes fell from minus 16 in July to minus 49 in August. This is the second weakest reading in 40yrs.
• The EY Item Club reports ‘the very weak August CBI survey raises the possibility that consumers are becoming more concerned and cautious as the UK’s 31 October departure date from the EU looms and expectations of a no-deal Brexit rise.’
• Hawkin’s bazaar, bane of many a parent’s life, has apparently been put up for sale by parent company, Tobar International.
• Fried chicken and waffle chain Bird has sold a majority stake to the Crown Partnership reports The Caterer. Bird implemented a pre-pack administration last week that saw its Shoreditch restaurant close.
• Co-founder and managing director of Bird Paul Hemings said ‘we are thrilled to have secured a better future for the brand and our amazing team. We look forward to working with Crown and being supported by their depth of experience.’
• The founder of the non-alcoholic spirit company Stryyk has told the Morning Advertiser that pubs should ensure they keep up with the increasing numbers of drinkers who want to drink low or no-alcohol products. Alex Carlton commented: ‘It is really important for pub and bar operators to be aware of how fast this movement is taking place. They should jump on and capitalise because, if they don’t, they’re going to be struggling in the next few years to compete with the main high street operators that are expanding their non-alcohol offering at a pace’.
• Food Standards Scotland have recommended the Scottish Government create requirements for food businesses to display calorie contents on their menus. BII Scotland Chair, Jo Graham said: ‘As an industry, we are very aware of the need to support and promote a healthier lifestyle for our customers. In Scotland, our members’ menus have already changed dramatically to offer lighter bites and smaller portions, as well as a wide range of vegan and vegetarian options’.
• Brigid Simmonds, Chief Executive of the BBPA has commented on the organisations third installment of the Beer & Pubcast, commenting: ‘In the latest episode of the Beer & Pubcast we discuss the exciting innovations brewers and pubs are using to improve their environmental credentials. Adnams have long been a leading light in this area, so it is fascinating to hear the views of their CEO Andy Wood about what has and can be done’.
• Tom Cenci of Duck & Waffle is set to open a new restaurant in South East London next month.
• The same-day perishables delivery service, AmazonFresh has been introduced into three new US cities, Houston, Minneapolis and Phoenix.
• Cafe Rouge is celebrating its 30th birthday by decreasing its prices over the August bank holiday.
• CEO of Tesco, Dave Lewis has announced the group will reduce its ‘excessive’ plastic use.
• A study by Oxfam claims taxing the UK’s top 1% of earners could raise billions of pounds each year and reduce the country’s inequality. If the UK was to introduce a “net wealth tax” on those earning more than £750,000 a year, the Treasury could raise around £10bn of extra revenue.
HOLIDAYS & LEISURE TRAVEL:
• Provisional figures from the Federal Statistical Office show German incoming tourism growing 3.3% in June with 39.8m international overnights registered across hotels and accommodation establishments with more than ten beds between January and June.
• London Luton Airport announces a new partnership with Abellio, which will operate the East Midlands Railway for the next eight years. This new rail service will come into service by December 2020, and will feature fast trains between St Pancras and Luton Airport Parkway every 30 minutes.
• Groups360 receives $50m investment from Accor, Hilton, IHG and Marriott International to develop its GroupSync platform. President and CEO Kemp Gallineau said ‘We are focused on continuing to enhance GroupSync’s reputation as the ‘smartest’ search and book application available, as it makes recommendations to planners based on their preferences and market price predictions from our algorithms.’
• Willie Walsh accuses Heathrow bosses of being untrustworthy over the expansion of the airport, saying ‘Advance costs are spiraling out of control and total expansion costs are being covered up’.
• STR has reported US hotel occupancy declined 1% to 71.7% during the week of 11-17 August, while ADR increased 0.4% to £130.89 and RevPAR fell 0.6% to $93.90.
• Hasbro has agreed to acquire Entertainment One, the majority image rights owner of Peppa Pig, in a deal valued at £3.3bn.
FINANCE & ECONOMICS:
• The US Fed apparently debated cutting rates last month by 0.5% rather than the 0.25% cut that was decided on according to minutes of the meeting. Donald Trump is pressing for faster and bigger cuts.
• Sterling up on the back of PM’s talks with Macron & Merkel at $1.2228 and €1.1047. Oil down at $59.97. UK 10yr gilt yield up 5bps at 0.52%. World markets: UK & Europe lower yesterday but US up. Far East higher in Friday trade.
• Brexit, politics etc.:
o PM Boris Johnson has just met Mrs Merkel in Berlin and Emmanuel Macron in Paris despite having said that he would not meet EU leaders for talks until the backstop had been removed.
o Mr Johnson said that ‘if we can get that backstop removed, I’m confident we can move forward.’
o Mrs Merkel has said that the UK has 30dys to come up with a workable alternative. M. Macron has said that the backstop remains ‘indispensable’ to the withdrawal agreement.
o Mrs Merkel has since clarified her position saying ‘I said that what one can achieve in three or two years can also be achieved in 30 days.’ She says ‘it is not about 30 days. The 30 days were meant as an example to highlight the fact that we need to achieve it in a short time because Britain had said they want to leave the European Union on October 31.’
o French President Emmanuel Macron is reported to have told Prime Minister Boris Johnson that there was not enough time to wholly rewrite Britain’s Brexit divorce deal before an Oct. 31 deadline.
o The PM has praised without giving detail ‘an excellent paper’ endorsed by pro-Brexit members of parliament proposing alternatives to replace the so-called Irish backstop.
o M. Macron also said that the UK’s vote to quit the EU must be respected. Although a move back to French as the language of EU law and communications is unlikely, it’s almost as though he would like to be shot of us.
START THE DAY WITH A SONG:
Wednesday’s song was Burning Down The House by the Talking Heads. Today who sang:
They really really ought to know,
Those one track minds
That took you for a working boy
Kiss them goodbye
RETAIL WITH NICK BUBB:
• Retail Sales Watch: The Retail month of August (the 4 weeks to Aug 24th) is nearly over and the silly CBI Distributive Trades survey is already pontificating about the outcome, but we haven’t seen the final word yet on how good July was on the High Street, given the somewhat easier weather comps…The wretched Office of National Statistics (ie the ONS or what we mockingly call the “Planet ONS”) reported last Thursday that non-seasonally adjusted total Retail Sales by value were up by 3.7% last month (ex-petrol), boosted by reported 6.3% growth from Small Retailers…But the BRC-KPMG measure of gross sales (which focuses on Large Retailers, yet doesn’t capture the likes of Amazon) was only up by 0.3% (up 0.1% LFL). So, who was right? The ONS? Or the BRC? Well, the consultancy group, Retail Economics (RE), which was founded by Richard Lim (who used to run the monthly BRC-KPMG Retail Sales
• News Flow Next Week: There is not much company news scheduled for next week, after the Bank Holiday weekend, but the WH Smith pre-close update and the The Works AGM are on Wednesday and the McColl’s Q3 update is on Thursday, whilst the monthly GfK Consumer Confidence survey is out first thing on Friday.
• BDO High Street Sales Tracker: We highlighted on Wednesday that the John Lewis sales figures for last week were a bit weak, but today’s BDO High Street Sales Tracker for medium-sized Non-Food chains continues to report suspiciously good progress, implying that BDO are having sampling and methodological problems. In w/e Sunday Aug 18th, BDO Fashion sales were up by 4.7% LFL (including Online), the fourteenth consecutive week of growth…And total BDO LFL sales (including Homewares and Lifestyle sales) were said to be up by 4.2% last week (up by 0.7% in Store sales and up by 21.4% in Online sales).
• Trade Press: Retail Week magazine has not been published this week, but Drapers magazine is out today and it is the first edition published by the new Editor, Kirsty McGregor. And in her first column she follows up the scoop about ASOS asking suppliers for discounts and thunders that “Online profits are a long game, not a quick win”. In terms of News stories, Drapers highlight that the Asos discount demand has shocked suppliers and that retailers are in despair about the continuing no-deal Brexit chaos. In terms of feature articles, Drapers look at whether the long-term effect of the rent cuts being demanded by fashion retailers in the wake of all the CVA’s will be to undermine investment in retail property, flag that the womenswear brand Hush has gained a devoted following by telling a brand story beyond its relaxed clothing offer, investigate the hidden costs of Online retail (to