Langton Capital – 2019-09-06 – PREMIUM – Greene King, beer price, US restaurants etc.:
Greene King, beer price, US restaurants etc.:
PREMIUM EMAIL – PLEASE DO NOT FORWARD:
A DAY IN THE LIFE:
Why, if you’re going to both add a grease stain to a shirt and poke a little hole in one, it has always to happen to two different garments?
And if you’re going to slightly burn one in a bonfire and partially tear the cuff off one when it gets caught in a tree, you’ll inevitably have ruined four shirts rather than have just comprehensively trashed the one article of clothing.
Because having a tattered rag on your back from time to time, which attracts all disasters until it falls to pieces, would be much more efficient and significantly less costly than is ruining your clothing sequentially, but life doesn’t work that way, does it.
Indeed there’s something to be said for paper garments akin to those worn by hospital patients and so speaks a man who is heading into a weekend that will feature woodland walks, messy dogs, a grass-cutting outing and a humungous bonfire.
So, I’ll be in the market for three or more likely four new shirts next week. On to the news:
BOOK REVIEW: THINKING FAST & SLOW. DANIEL KAHNEMAN. Daniel Kahneman is a psychologist famous for his work on decision making. He won the Nobel prize for economics in 2002. We’re just scratching the surface here & will run a bit more on Monday. 6 Sept 2019:
Setting the scene:
• We are what we are. Education, even civilisation, only goes so far. We are, ultimately, a prisoner to our DNA. We have been educated and somewhat civilised (in Langton’s case) for perhaps 200yrs. In other instances, perhaps for 2,000yrs. We scurried around the Savannah eating berries and avoiding snakes, however, for perhaps 100 times that long.
• Against that backdrop, it’s hardly surprising that we return to our roots when stressed, panicked or tired. We are brilliant (except for the autists among us) at picking up on micro-expressions, hints as to temper and we are good at spotting patterns. Often we invent patterns into which we fit the facts – and that’s where it all goes wrong.
• Heuristics are types of behaviour. They are cognitive biases.
The above in context:
• Prof Kahneman suggests that thinking is either fast (instinctive) or slow (more academic) in nature.
• If you are walking and scratching your head and are asked the capital of France, you know the answer. If you are asked the square root of 17, you will very likely stop walking in order to think ‘properly’.
Some (very interesting) random points:
• We are very sensitive to anger. Less so to the longer-term implications of buying frozen products wrapped in plastic.
• Fast thinking is extremely powerful. I didn’t like him. She was angry. I saw a spider etc.
• Fast thinking is efficient (given the time constraints). Each one of us has around 1,000 linear ancestors who all made it to adulthood and procreated. Otherwise we wouldn’t be here.
• But fast thinking is very, very imperfect. A pleasant person may have a ‘resting face’ that looks annoyed etc.
• We are ‘blind to our blindness’. Fast thinking can be, has been and will be exploited by demagogues, cult leaders and the like. It’s exploitation. Such people are just unconsciously good at manipulating others.
• Pick pockets know all about distraction. We can’t cope with too many sensations (or thoughts) at once.
• Tiredness, distraction, stress, strong emotions etc all open us up to manipulation – or to making unforced errors. Not for no reason do politicians stuff themselves with gummy bears or some other glucose snack when in negotiations.
• We recognise weaknesses in other people more easily than we do in ourselves. We are wont to double down on mistakes.
• Laziness is baked in. We settle for fast thinking unless obliged to do otherwise.
• Slow (academic) thinking is very bad at keeping fast thinking (intuitive behaviour) under control. Think Mr Spock vs Captain Kirk as working examples.
• We are drawn to fast thinking. It’s more ‘natural’. But, whilst it may help us avoid snakes and angry alpha males, it won’t help us in Brexit negotiations etc.
A little deeper analysis:
• Prof Kahneman asks whether intelligent thinking can overcome intuitive decisions. He calls them System I and System II. He suggests 1) not very much and 2) not very often.
• Of course robotic, Mr Spock types may be able to do this more often than many others.
• People are overconfident. That leads them to trust their intuition (he’s an attractive politician etc.) even when the evidence suggests otherwise.
• Not falling for ‘tricks’ is about self-control. For most people, this is in short supply.
• Prof Kahneman does go into more detail & we’ll follow up on this tomorrow.
GREENE KING: GNK has updated on its first 18w trading. 6 Sept 2019:
Greene King, which has agreed to be acquired by Chinese investor CKA, has updated on trading for the first 18 weeks of its current financial year. Our comments are set out below:
• Greene King reports that LfL managed sales were down 1.8% in the first 18w of its financial year
• Managed sales are up 1.5% over the last seven weeks – the period since the end of the World Cup last year
• GNK says the recent uplift is ‘demonstrating the continued momentum in Pub Company as a result of our ongoing focus on improving value, service and quality.’
• GNK says that, on a 2yr basis, sales over the first 18 weeks were up 1.0% on a LfL basis.
Tenanted & Leased Pubs:
• Greene King reports ‘LfL net income in Pub Partners was down 4.2% for the first 16 weeks, driven by softer LFL beer sales following last year’s comparatives.’
• Greene King says ‘in Brewing & Brands, total beer volumes were down 6.5% for the first 18 weeks and own-brewed volumes were down 7.9%.’
• These numbers will have been impacted by the World Cup and the hot weather last year. The current period of more subdued trading will also have had an impact
Takeover, costs, margin, debt, balance sheet etc.
• GNK says ‘we are on track with our cost mitigation programme and expect to limit net inflation this financial year to £10-20m.’
• The company adds ‘we also continue to make progress on our refinancing programme and in June we prepaid the remaining £93m Spirit A4 bonds.’
• It says ‘we remain on track with our disposal programme and expect to dispose of 85-95 pubs this year, generating disposal proceeds of £45-55m from which we will fund the opening of eight new pubs.’
• The group reiterates that the company is to be taken over at a price of 850p per share in cash. The previously-announced, FT18/19 final dividend of 24.4p will also be paid to shareholders on the register as at 9 August
• Greene King is to lose its independence later this year. This is both 1) a vote of confidence in the industry by the buyer and 2) a comment from the seller that now (and at 850p per share) is perhaps the right time to get out.
• Due to the bid, the above figures are less meaningful than they would otherwise be.
• However, they do give an indication as to how the market is performing. Here there are no real shocks. The World Cup and hot weather comps were always going to be difficult to beat and hence the negative numbers for the 18w as a whole.
• GNK points to an upturn in the most recent 7wks. Arithmetically, the managed LfL sales must have been down around 4% over the first 11w of the period covered today.
• This is a short statement from a company that will not be listed for much longer. The share price broadly reflects the bid less the time value of money. There is not likely to be a competing offer and the share price suggests that the market expects the bid to complete as planned.
GENERAL NEWS – PUBS & RESTAURANTS:
• The Good Pub Guide has reported that the cost of a pint of beer has increased in the past year by 10p to £3.79. Whilst this is a national average, the price ranges between around £3.46 in Shropshire up to £4.57 in London. Beer in Yorkshire costs £3.53 on average.
• Coffee chain Grind, which reported numbers to Companies’ House showing that it has lost £4.5m since incorporation, is said to be planning more than triple its number of sites after securing £4.6m funding from HSBC. Grind has 11 units at present. Grind CEO David Abrahamovitch says ‘with HSBC’s support, plus our recent £3.4m crowdfunding equity campaign, we are stronger than ever, with the funding we need to execute our plan and keep growing across London and beyond.’
• In the US, Bellwether Coffee has raised $40m in Series B funding. The company produces hardware and software for coffee roasting.
• Britvic has announced that, further to its announcement on 11 March 2019, Ms Joanne Wilson is now confirmed as joining the company as Chief Financial Officer of on 9 September 2019.
• Campari has completed the acquisition of French rhum agricole brands Trois Rivières and La Mauny for €60 million. Campari says ‘with this acquisition Campari Group will add prestigious agricole rum brands to its offering and enhance its exposure to rum, a premiumising category currently at the heart of the mixology trend and growing cocktail culture.’ It adds ‘moreover, Campari Group will add significant critical mass in France, poised to become one of the Group’s strategic markets.’
• Pernod Ricard has announced that it plans to build a malt whisky distillery in Sichuan, China, at a cost of some $150m. Pernod says ‘the ground-breaking of the distillery signifies the beginning of a journey of innovation, expertise and dedication to craft a new, iconic malt whisky that embraces whisky history and heritage with a character unique to Chinese culture.’
• US restaurant sales fell by 0.7% on a LfL basis in August reports TDn2K. This is the second consecutive month of decline. Journal NRN reports ‘the latest disappointing results could not be attributed to any external factors, thus raising questions about the current health of the industry.’
• TDn2K reports ‘August’s same-store sales growth compared with the same month two years ago is actually an encouraging 1.2%.’
• Brinker International has completed the acquisition of 116 Chili’s Grill & Bar restaurants from its 14-year franchisee, ERJ Dining.
• McDonald’s has added DoorDash in the US as a delivery partner. DoorDash joins long-time partner Uber Eats.
• Patisserie Holdings is likely to move from that administrator’s hands to those of a liquidator later this month.
• The British Medical Journal suggests that increasing the cost of sugary snacks could be more effective at tackling obesity than the tax on sugary drinks has been. The BMJ maintains that, whilst sugary drinks are high-profile, high sugar snacks including biscuits, cakes, chocolates and sweets are responsible for a greater proportion of the nation’s sugar and energy intake.
• The Meatless Farm Co has secured a listing with Brakes. The demand for vegan products is said to have risen by up to 300% this year.
• Propel has reported that Russia-based Dodo Pizza intends to become the second largest pizza delivery company in the UK over the next 10yrs.
HOLIDAYS & LEISURE TRAVEL:
• Dart Group’s shares fell sharply yesterday but recovered to close little-changed on its cautious trading update at 738.5p (down 1.5p).
• Visit England is seeking to persuade young Brits to take a short break in the UK with a series of new short films. Observers have recently suggested that the move towards more staycations has negative implications for the overseas tour operators.
• Visit Britain says ‘we want more young Brits to get out and experience the amazing destinations and activities on our doorstep whether learning how to paddle-board in London, switching off in a log cabin in the Cairngorms in Scotland or tackling cliff camping in Anglesey.’
• PPHE yesterday reported H1 numbers saying LfL EBITDA had grown by 5.7% with the group’s performance ‘supported by recent investments in the hospitality real estate portfolio and RevPAR outperformance in London.’
• PPHE’s CEO Boris Ivesha says ‘we are pleased to report a good first half performance, with continued revenue growth and Group like-for-like EBITDA up 5.7%. This reflects an increase in all of our key operating metrics, with good growth in occupancy and average room rate both contributing to strong RevPAR growth, as well as to the strength of our portfolio. This performance has been driven by a solid operating performance from our UK hotel portfolio.’
• PPHE implies that what some observers have suggested was a slowdown in recent months has had little impact & says ‘we continue to expect PPHE’s full year performance to be in line with previous expectations.’
• The European aviation safety watchdog will not simply take the word of its US peers when it comes to the safety or otherwise of Boeing’s troubled 737 Max reports the European Aviation Safety Agency. The European body will run its own tests on the plane before approving a return to commercial flying.
• UK-based airlines will be able to fly to EU destinations until at least October 2020, irrespective of what happens with Brexit, due to ‘unilateral contingency’ legislation. Transport minister Grant Shapps has welcomed the news saying ‘connectivity is at the forefront of this government’s vision for a global, outward-facing Britain.’
• Tour operators will be pleased though there could still be issues re queues in airports and the like as a degree of uncertainty remains as to just what legislation will be in place in time for next summer.
• ABTA says it ‘has been pushing hard for this extension, which is to the mutual benefit of UK customers and the EU, and we are encouraged that the European Commission has responded today by extending the deadline.’
• BA pilots have confirmed two days of strikes next week.
FINANCE & ECONOMICS:
• Telegraph reports that Sajid Javid has found the Magic Money Tree. Lower bond yields have made debt servicing cheaper – but there is no guarantee that that will last.
• Sterling up again on Brexit delay or cancellation hopes at $1.2326 and €1.1167. Oil up a little at $60.97. UK 10yr gilt yield up sharply by 12bps at 0.60%. World markets up yesterday except the UK with the Far East up in Friday trade.
• Brexit & politics:
o Boris Johnson has taken a hatchet to the Cabinet that he inherited, lost his first four votes in the Commons, has excommunicated 21 of his own MPs, lost one via desertion to the Lib Dems and now his own brother has stood down citing irreconcilable conflicts and a desire to spend less time with his family.
o Mr Johnson’s former boss at the Telegraph, Max Hastings, has told BBC Politics Live that Mr Johnson thinks about himself, himself, himself, his party and his country in that order.
o Mr Johnson has lost his wife, some friends, 20-odd colleagues and now his brother. He has added a girlfriend little-more than half his age, and incontinent puppy and Dominic Cummings. He now says he would rather be ‘dead in a ditch’ than delay Brexit. Some may question his judgement & he appears to be somewhat boxed in.
o EU said to believe that, if Mr Johnson had a plan, they would have heard about it by now.
o The CBI has welcomed moves to head off a no-deal Brexit.
o The PM is to try to get Commons approval for an election again next week. He was in Yorkshire yesterday giving speeches that he would like to see kick-start an election campaign.
o FT suggesting that the Labour leader Jeremy Corbyn looks increasingly likely to reject any snap election.
START THE DAY WITH A SONG:
• The song is taking a short break due to exam commitments.
RETAIL WITH NICK BUBB:
• BDO High Street Sales Tracker: We flagged on Wednesday that the John Lewis sales figures for last week were bad, because of the impact of the Bank Holiday heatwave, and today’s BDO High Street Sales Tracker for medium-sized Non-Food chains (which has been reporting suspiciously good progress in recent weeks) is also bad. In w/e Sunday Sept 1sth, BDO Fashion sales were down by 4.6% LFL (including Online), breaking an improbable fifteen week run of growth…And total BDO LFL sales (including Homewares and Lifestyle sales) were down by 4.1% last week (down by 6.5% in Store sales and up by only 5.7% in Online sales).
• News Flow Next Week: The political drama will continue in Westminster next week, as the increasingly hapless and beleaguered Prime Minister tries to force a General Election in mid-October, but there is plenty going on in Retailing to distract is, kicking off on Monday, with the ABF (Primark) pre-close trading update. On Tuesday we then get the JD Sports interims, whilst the embattled Sports Direct and Superdry both hold their AGM’s on Wednesday. Thursday then brings the Morrisons interims and the John Lewis Partnership interims.