Langton Capital – 2019-09-12 – PREMIUM – EIG, Comptoir, heuristics, shop closures etc.:
EIG, Comptoir, heuristics, shop closures etc.:
PREMIUM EMAIL – PLEASE DO NOT FORWARD:
A DAY IN THE LIFE:
Why is it that waiting staff always ask you if everything is alright with your meal just after you have shovelled the most humungous spoonful of food into your mouth?
Have they either 1) cunningly waited until you can’t answer because they really don’t want any feedback or 2) just come to it, robotically, on the list of things (alongside ‘would you like any ridiculously expensive olives / bread / water) that they have to ask in order to fill in their customer scorecard?
Because I’d like to think it was the latter as, whilst it doesn’t say much positive about the thought process that’s taken place (or not taken place) before the question was asked, it seems somehow less ominous.
Anyway, we’re moving slowly towards the weekend. On to the news:
BOOK REVIEW: THINKING FAST & SLOW – DANIEL KAHNEMAN: More crumbs from the great man’s table. We’ll make this the last piece on this rather heavy but ground-breaking book. 12 Sept 2019:
• Prof Kahneman says that System I thinking is instinctive, a product of our evolution (the bulk of which was spent picking ticks from each other’s hair on the African savannah rather than sitting behind a desk) and System II is more considered, educated etc.
• The good and the bad news is that System I is faster and can override any other thoughts – at least for a moment or two – and it can lead to systematic biases. Here we look at just a few more cognitive biases:
The fear of sharks:
• Emotion can trump reason. We can be very suspicious of experts & prefer simple stories. This can lead to misplaced priorities.
• We suffer from ‘probability neglect’. We fear sharks and tornadoes but, well, what are the odds? Yet we will jaywalk at the drop of a hat.
• Averages are more powerful things – but they are boring and are often ignored. A good story will sway people.
• People ‘substitute the plausible for the probable’. One could be struck by a meteorite – but one probably will do oneself harm if one eats five bars of chocolate every day for ten years.
• We overweight small risks and underweight large ones.
The law of large numbers:
• Big numbers become a blur. We behave as though a one in a million chance is identical to a one in a billion one when, in fact, it is a thousand times greater.
• People should question their ‘intuition’. The mind is biased towards causal rather than statistical explanations.
We join the dots:
• We leap to conclusions and fill in the mental dots. There is an almost perfect correlation between intelligence and shoe size. But this is because adults are cleverer (usually) than children. It’s not the big feet that made them intelligent.
• People tend to ‘evaluate rather than predict’. Emotion creeps in.
I wanna tell you a story…
• Compelling narratives can be misleading. The early bird gets the worm, but the early worm gets eaten – so whether it’s better to be early or not depends very much on your viewpoint.
• AKA ‘narrative fallacies’, some journalists cum politicians have based their careers on fallacious comments about straight bananas, odourless kippers etc. A vivid story masks facts.
• We ignore ignorance.
• Hindsight bias means we think what happened was always obvious. Not so. Outcome bias is very similar. You can’t know the present without it changing your opinion of the past.
• The Illusion of Validity means that we have an unjustified level of confidence in our beliefs – often given an acute lack of evidence. People repeat their mistakes. The only thing they learn from history is that they don’t learn from history.
• Competitor neglect is a problem. Chess grand masters might, but most of us don’t plan for the other guy’s actions.
• Loss aversion and the fear of regret will often colour decisions.
• We value what we own more highly than would others. We are not natural empaths. Not only can we not see ourselves as others see us, we can’t see anything at all as others see it.
• We re-frame events. The past ‘plays tricks on us’ but we’re really playing tricks on ourselves.
• We can ‘mis-want’ things. Our decision making may be flawed. Garbage into the decision-making process and inevitably garbage out.
• We underweight ‘duration’. A moderately enjoyable career vs a month on Love Island.
• There’s too much to conclude briefly so we’ll just repeat a couple of Kahneman’s points.
• System I is useful but flawed. It does not remind you when it is about to become unreliable. Be on your guard.
• It’s easier to recognise flawed behaviour in others than it is in oneself.
• Don’t seek to find correlation everywhere. And, when there is correlation, there may not be causality. And when there is causality, which way did it flow? Did the delinquents create a bad environment or did the bad environment create the delinquents?
GENERAL NEWS – PUBS & RESTAURANTS:
• Stonegate has updated on the financing of its 18 July agreed bid for EI Group reminding investors that the ‘acquisition is to be effected by means of a scheme of arrangement between EIG and the Scheme Shareholders.’ Stonegate has now said that a list of bankers including Deutsche Bank, Lloyds Bank and others will join the company’s existing bankers Barclays, Goldman & Nomura in financing the deal.
• Comptoir Group has released H1 numbers saying that revenue rose 0.2% to £15.8m with adjusted EBITDA up 11.1% at £2.0m. The group reports a loss before tax of £528k (2018: loss £693k) with a diluted loss per share of 0.48p (2018: loss 0.57p).
• Comptoir reports cash at the year end of £3.4m (2018: £3.9m) and confirms that it now owns and operates 25 restaurants, with a further 4 franchise restaurants. The group’s chairman, Richard Kleiner, reports ‘I am pleased to announce that these results show that Comptoir Group continues to prove its resilience in a challenging and uncertain market.’
• Comptoir says ‘our cautious approach to investment in new sites has been maintained, whilst taking the opportunity to carry out selective refurbishments in the existing estate. This coupled with our dedicated focus from our operational and support teams across the business helps drive the optimal experience for all of our customers.’
• AB InBev has revived plans to IPO its Asia Pacific subsidiary saying it has ‘resumed its application for the listing of a minority stake of its shares on the Hong Kong Stock Exchange. No assurance can be given that this transaction will be completed and the decision to proceed will depend on a number of factors and prevailing market conditions.’
• It’s the way you tell them. Various bodies have commented on the Local Data Company’s assertion that a net 1,234 shops shut across the UK in H1 this year. The tone seems to have been influenced by the political persuasion of the commentators.
• The Telegraph quotes the Centre for Cities as saying that services could attract more visitors. It interprets this as a suggestion that operators and customers should not moan about it but embrace cafes and restaurants.
• The Guardian says ‘strengthening local economies will do more to revive Britain’s struggling high streets than sprucing up city centres.’ It also quotes the Centre for Cities as suggesting that jobs should be injected into deprived areas to provide spending power.
• The Guardian says that providing well-paid jobs in deprived city centres will do more for spending power than will adding a museum or a water fountain.
• The Centre for Cities questioned how much online shopping was to blame for the High Street crisis. If it were wholly to blame, then there would be the same proportion of empty shops in Cambridge as in less prosperous Grimsby.
• The BBC picks out the suggestion that ‘people not having much money to spend is the main reason high streets struggle.’
• Langton could add in cheap money, over-capitalised PE houses, greed, fashion-following, quick buckism and the me-too attitude that has led to an increase in capacity (at least re casual diners but also re shopping centres as a whole).
• Donald Trump has announced his administration will ban flavoured e-cigarettes.
• NRN in the US reports Q2 sales performances varied across business segments with quick service +2.7%, coffee & snacks at 2.0% and fast casual at 1.7%.
• The BBPA has welcomed a government U-turn that will allow international students to stay in the UK for two years after graduating from 2021. CEO Brigid Simmonds says ‘with 24% of employees in UK pubs coming from overseas – rising up to 40% in some metropolitan areas – and 42% also being under the age of 25, letting international students stay in the UK for two years after graduating is welcome news for our sector – particularly as we face a real skills shortage.’
• UK Hospitality has called in a report published alongside CGA for the government to ‘slash red tape to unleash hospitality’s productivity powerhouse.’
• The 5th edition of Future Shock, produced by UK Hospitality & CGA covers a range of developments including the use of technology, promoting staff well-being and driving productivity through analytics and motivation.
• UKH’s Kate Nicholls says ‘the latest Future Shock report shows that businesses are moving in the right direction, but many are swamped by red tape. Businesses need flexibility if they are to thrive, some do not have the room in which to work. Productivity is, of course, a huge concern for all businesses and dynamic businesses at the cutting edge of hospitality, and switched-on businesses, are always looking to improve their levels.’
• CGA adds ‘hospitality has sometimes been perceived as less efficient than other industries, but this report makes clear that we are collectively much more productive than we might think—and getting better all the time.’
• Famous Brands, which owns the Wimpy brand as well as Gourmet Burger Kitchen in the UK, has said that its H1 results to end-August were ‘satisfactory’ despite a 12.8% fall in sales at GBK as it continues to close stores. Sales at GBK were reported to be up by 8.6% on a like-for-like basis.
• Famous Brands reported pressure on revenue at its supply chain division. The shares, which trade in South Africa, were flat on the news having fallen by over 20% during 2019 to date.
• EAT has launched a Mushroom Melt featuring vegan smoked ‘Gouda’ cheese across all of its stores in the UK. EAT says ‘we’ve created a hearty plant-based toastie, ideal for the colder months.’
• EAT will be offering free samples across its UK stores today (while stocks last).
• A Deliveroo ad has been banned by the Advertising Standards Authority for suggesting that it could deliver food anywhere in the UK. Roo Foods argued that the scenes in question were not meant to depict real life.
• Next week’s Lunch trade show will feature record numbers of plant-based and ‘meat-free’ dishes per organisers. Some 21% of the UK’s population is said to identify as ‘flexitarian’.
• Taco Bell is to launch a dedicated vegetarian section across its 7,000 restaurants in the US from today.
• New York City authorities have accused Chipotle Mexican Grill of violations of the city’s Fair Workweek Law, which requires restaurants to offer ‘predictable schedules’ to its staff.
HOLIDAYS & LEISURE TRAVEL:
• Travel Weekly maintains that customers are saying ‘to hell with it’ re Brexit and are continuing to book holidays. Though only anecdotal at this stage, the journal quotes a number of smaller operators as saying that trade was holding up.
• Club Med, which is owned by Fosun of China, has reported H1 numbers to end-June saying that revenues rose 4.8% to €906 million. The group says ‘all geographical areas saw Business Volume growth versus the prior-year period [with] America: up 15.2% versus first-half 2018 and 26.8% versus first-half 2017; Asia: up 5.8% versus first-half 2018 and 15.6% versus first-half 2017; Europe: up 2% versus first-half 2018 and 11.3% versus first-half 2017.’
• Club Med says recurring EBITDA totalled €179.7 million for the first six months of 2019. ‘At constant accounting standards (without IFRS 16), recurring EBITDA stood at €98 million, versus €95.5 million one year earlier.’
• Club Med says it is investing heavily but, despite that, the group’s ‘free cash flow is positive and is up compared to first-half 2018.’ President Henri Giscard d’Estaing says ‘after a very good performances on its first-half 2018, Club Med recorded new growths on its first-half 2019, with a further increase in business volume across all major markets and a new growth in number customers on its premium resorts especially in America and Asia, and a further increase in its profitability.’
• Club Med says that it ‘welcomed 750,000 customers on the first-half 2019, a year-on-year increase of 1.6%.’ Re the future, the group says that calendar H2 is ‘confirming the dynamic performance recorded in the first half of 2019, the cumulative bookings for the second half of the year are up by +4.9% in BV STS (at 20 July) compared to the bookings as of 20 July 2018, at constant exchange rate.’ Club Med adds ‘all geographical areas are growing. At the same date last year, more than 80% of bookings of second-half year had already been made.’
• Euphemisms: Declining hotel room rates now AKA ‘rental compression’.
• Heathrow handled a record 262,000 on 4 August, making it the busiest day in the airport’s history. Some 7.7m people used the airport over the month of August as a whole.
• Luton is also said to have registered a record-breaking summer with passenger numbers for the 3mths to end-August up 7.3% at 5.3m. Amsterdam was the top destination.
• California has passed a gig-economy law that will require workers in some of these newly-created niches to be offered holiday and sick pay.
• Uber has invested $200m in Uber Freight, a trucking business.
FINANCE & ECONOMICS:
• Sterling mixed but little-changed at $1.2328 and €1.1191. Oil down at $61.25. UK 10yr gilt yield up 1bp at 0.64%. World markets mostly up yesterday with Far East mixed in Thursday trade.
• Donald Trump is to delay tariff hikes on $250bn worth of goods coming in from China as a ‘gesture of good will’. China has released a list of 16 US imports that will be exempted from tariffs including anti-cancer drugs and animal feed.
• Brexit & politics:
o Plan. Annoy the ‘right’ people by proroguing parliament. Pick a vote & make it a ‘confidence issue’. Expel rebels from the Tory Party & remove them permanently by standing official Conservatives against them. Call a General Election. Re-elected with workable majority. Dump DUP. Throw Ulster under the bus, apply lipstick to T May deal, sign up & Bob’s your uncle. Copyright Dominic Cummings. Went wrong at step three or four.
o Proroguing of parliament held to be illegal. PM ‘misled the queen’. Said to be a ‘resigning matter’. See game play above. Boris Johnson continues to break records. Appeal to be heard in London next Tuesday.
o Johnson October resignation perhaps on the cards. Would avoid him dying in a ditch & could pitch him as the champion of the people vs the judiciary & parliament. All very divisive stuff.
o JP Morgan agrees. It has been game-playing the current situation & believes that the PM’s resignation is now the most likely outcome.
o Yellowhammer: The docs concern a ‘reasonable worst case’. The five-page study warns of delays of two and a half days at channel crossings. This could last for 3mths. Implications for perishable goods & just in time parts. There could be delays at immigration for holidaymakers at ports and airports. Medicine supplies are ‘particularly vulnerable to severe extended delays’. Supermarket prices (for fresh products) would rise. Panic buying could lead to shortages. There would be law enforcement issues as data would not be shared, police time would be taken up with protests and there could be a rise in disorder. Fuel supplies could be disrupted.
o Michael Gove insisted the above were not ‘predictions.’ Andrea Leadsom had previously said the information should not be released as it would ‘concern’ the public.
o Labour deputy Tom Watson says that a People’s Vote should come before the next General Election. He says ‘the only way to break the Brexit deadlock once and for all is a public vote in a referendum. A general election might well fail to solve this Brexit chaos.’
o Sir Keir Starmer has told the TUC annual meeting that another referendum is the only way of ‘cleaning up the mess left by the Tories’. Official Labour view is that a Labour deal would be pitched as an alternative to remain.
o A General Election pact suggested by The Brexit Party to no10 has apparently been rejected.
o Senior Scottish judges have held that the prorogation of parliament is illegal and that Boris Johnson misled the Queen as to his reasoning. The FT says ‘this is a remarkable and unprecedented judgment, and it is of profound importance, even though there will be an appeal hearing next week (on Tuesday).’ There have been calls for the PM to resign.
START THE DAY WITH A SONG:
• The song is taking a short break due to exam commitments.
RETAIL WITH NICK BUBB:
Morrisons: Ahead of today’s interims (for the 26 weeks to Aug 4th) the Morrisons share price has had a disappointing run, given worries about summer trading, but it has just begun to recover and that should continue this morning after reassuring noises from management. The statement is headlined “Maintaining momentum” and, despite Q2 LFL sales of -1.9% against tough comps, pre-exceptional PBT was 5% up at £198m: “In this more testing period, our profit performance was robust, free cash flow generation remained strong, and we were satisfied with our relative LFL performance. During the second half, we are planning both for retail LFL to improve, and for various additional cost saving opportunities”. One nice surprise is a 2p special interim dividend. Analysts meeting 9.30am in the City.
John Lewis Partnership: We flagged yesterday that today’s interims from JLP (for the 26 weeks to end July) were bound to be weak, but although the fall in “underlying” PBT before exceptionals from last year’s token £1m (which was 99% down…) to -£26m isn’t that much worse than our forecast of -£15m, the outcome is flattered by property profits of £13m (mainly in Waitrose).