Langton Capital – 2019-09-20 – PREMIUM – Black Swans, allergies, Thomas Cook etc.:
Black Swans, allergies, Thomas Cook etc.:
PREMIUM EMAIL – PLEASE DO NOT FORWARD:
A DAY IN THE LIFE:
I think a large part of the job of high street professionals, be they solicitors, accountants, dentists, vets or whatever, is actually getting paid for the work they’ve done.
Of course, another area of intense effort is perhaps expended on creating demand.
Because, as Warren Buffett says, if you ask a barber whether you need a haircut, you shouldn’t be surprised by the response.
And this extends to other professions, particularly where the free market is concerned as, while the NHS might think (very, very often correctly) that ‘watchful waiting’ is the way to go, a private doctor will tempted to recommend an extended course of this, that or the other that could set the patient (or ‘customer’) back several thousand pounds.
That might be why, to no discernible effect, the US spends nearly twice as much on healthcare per capita as does Western Europe. They’ve created rich doctors, drug and medicine focused ad-men and a hole in customers’ wallets.
So, with a trip to the vet always in the offing, I’m expecting to be told with a straight face at some point that we need to pay for a heart transplant for the goldfish or to fly in a kidney for the hamster. On to the news:
BOOK REVIEW: BLACK SWAN (part II) – Written in 2007, author & investor Nassim Nicholas Taleb shone a new light on risk.20 Sept 2019:
• Taleb maintains that, whilst you may never see a black swan, you can never be sure that they don’t exist.
• His approach to risk is similar. There is a long tail and 100yr events do happen (and often much more frequently than every 100yrs)
Various heuristics cause systemic mistakes:
• Narrative fallacy. We believe in stories and in directionality. There may be none.
• Story-addicts. We believe in stories & prefer explaining to understanding.
• Simplification. We think in a linear way. A holistic approach doesn’t come naturally. In simplifying things, we de-emphasise randomness.
• Availability bias. We put emphasis on things that are easy to recall. We can’t ignore posterior information. Sometimes, we should.
• Stories overwhelm facts.
• We forget about Black Swans very quickly. Think how quickly the herd of wildebeest turns back to the grass after a lion has killed one of its members.
• Waiting for a Black Swan takes patience. Peers may ridicule the cautious. You need to be ‘impervious to scorn’. Taleb has made a fortune but, he says, he only has four good years in twenty.
• Survivor bias is linked to the availability bias. You focus on what is there. The losers have gone. This works in reverse. Think of the question ‘does crime pay?’ The answer is, we don’t know – because we only get to hear about the thieves that are caught.
• Stability may be an illusion.
• There is an ‘illusion of invincibility’. If there wasn’t, we might find it hard to get out of bed in the morning.
• We may be blind to risks. Particularly those that we have taken (and got away with in the past). Think about the man who runs through a dynamite factor with a lit candle. Just because he got away with it, would it be wise to do it twice?
• Don’t look at rich gamblers & conclude gambling is a good thing.
• The word ‘because’ should come with a health warning. You are assuming so, so much.
• We underestimate what we don’t know but, at the same time, too much information is bad for knowledge.
• Says ‘brokers are not real experts’ and adds there can be an inverse relationship between reputation and accuracy.
• A river that is 3’ deep on average may have 10’ deep trenches.
• Five-year plans are laughable.
• Linearity is a myth. We have ‘physics envy’.
• Psychopaths tend to rally followers.
• Humans are ‘anticipation machines’.
• ‘Conservative’ bankers may be sitting on a pile of dynamite.
• We should concentrate on outcomes, not probabilities.
• There’s actually quite a lot more but we’ll pull stumps at this point. Mr Taleb goes on to discuss Grey Swans, long tails, bell curves, sigma, fractality (small sample sizes) and several other topics.
• Put your hand up if you’re not here. Occasionally, our system bounces email addresses off our list. It for some reason thinks this is a good idea. We never (well, hardly ever) cut anyone on purpose. But, proving a negative is tough so, if you don’t get it for a few days & would still like to receive it, please (check your spam folder and then) drop us a line.
GENERAL NEWS – PUBS & RESTAURANTS:
• Allergies: The Food Standards Agency has announced new measures aimed at protecting people with food allergies after the inquest into the death of Owen Carey, who had a severe allergy to dairy, heard that the teenager had not been informed about the presence ingredient to which he was allergic.
• The FSA is to issue ‘clear and easy-to-follow’ instructions to environmental health officers and trading standards officers and will publish an update to its ‘Safer Food Better Business’ guide.
• The FSA is also to launch an awareness campaign to remind businesses and consumers about the best ways to keep people with food allergies safe.
• Byron CEO Simon Wilkinson said ‘we take allergies extremely seriously and have robust procedures in place, and although those procedures were in line with all the rules and guidelines, we train our staff to respond in the right way.’ Mr Wilkinson continues ‘we have heard what the coroner said about the need to communicate about allergies and it is clear that the current rules and requirements are not enough and the industry needs to do more.’
• The MCA has reported that the UK restaurant market is set for its largest decline in seven years, with market value forecast to fall -3.1% to £18.8bn in 2019. The report finds that falling consumer frequency and rising costs at independent restaurants are the driving the downturn.
• The Licensees Association has called on the pub industry to abandon the much discredited Retail Price Index that is often used to annually increase rents in the sector. Sir David Norgrove, chair of the UK Statistical Authority has stated ‘We have been clear that the RPI is not a good measure, at times signiﬁcantly overestimating inﬂation and at other times underestimating it, and have consistently urged all – in government and the private sector – to stop using it’.
• The MCA has reported that the eight-strong fast-casual Mexican brand, Benito’s Hat has appointed advisors CBW after suffering cashflow problems.
• EI Group has invested £1.7m to transform the Grade II-listed Wakefield & Barnsley Union Bank building on Westgate, Wakefield, opening a ‘Pub Support Hub’ and HQ base this week for Craft Union Pub Company.
• EI reports ‘following an extensive refurbishment, the building reopened last week and is home to a new Craft Union pub (the Union Bank), as well as accommodating the pub company’s support team and a suite of training and meeting facilities for use by the wider group.’
• The City Pub Group yesterday said that it was ‘pleased with our trading performance to date.’ Regarding trading in H2, it says ‘the Group will continue to look at acquisitions of sites on a selective basis and take advantage of our ability to move quickly and decisively.’
• City Pub Group adds ‘sales in the 11 weeks since the period end have increased 35% driven by our strategy of opening larger sites and capitalising on local trading opportunities. The quality of our trading estate is continually improving and has been enhanced by the recent openings. The increased number of letting bedrooms across the estate will drive future operational efficiencies.’
• It says its ‘focus is now on raising the quality of the estate, completing our development programme, acquiring new sites on an opportunistic basis, reducing our debt and growing dividend payments for shareholders as cash generation increases.’
• Veganism. Tim Horton’s is to extend its offer of a Beyond Meat breakfast sandwich. It initially introduced the offer in June this year. Tim Horton says ‘we are always listening to our guests and testing a wide variety of products across the country.’ Re the new product, it says ‘we have particularly seen positive reaction to our Beyond Meat offering in Ontario and BC, especially in breakfast.’
• US restaurants. US operator Darden Restaurants (Olive Garden, Longhorn Steakhouse & others) has said that uncertainty is impacting consumer confidence across its markets. Darden reported 0.9% LfL sales growth in the quarter to 25 August. It says ‘there’s nothing structural that we see that’s changed out there other than it appears to be a little bit more uncertainty today than there was.’
• Salad Box is to open in Birmingham next month. The internationally franchised brand was founded in Romania in 2012.
• Amazon founder and CEO Jeff Bezos has said that the online retailer will be carbon neutral by 2040.
• Burger King has removed all plastic toys from its children’s meals, this is expected to save 320 tonnes of waste annually.
• The CEO of the Wine and Spirit Trade Association, Miles Beale, has said the deadline for the UK’s break from the EU ‘could not be worse’ for wine businesses as they will have to prepare for a no-deal Brexit when they should be focused on Christmas sales. Beale said ‘Timing could not be worse. Warehouse space already under pressure in run-up to Christmas and the Government seems hell bent on failing to act on the concerns of industry. So much for taking back control.’
• The owners of Flight Club plan to open their first Electric Shuffle shuffleboard site in Canary Wharf on 29 November. The site will use unique technology to create an accessible, fast-flowing game.
THOMAS COOK REFINANCING:
• Thomas Cook Group has commented this morning on what it calls ‘speculation’ but it then admits that Press reports are broadly correct (see below).
• TCG says it has noted ‘recent media speculation regarding its proposed recapitalisation’ and says ‘discussions to agree final terms on the recapitalisation and reorganisation of the Company are continuing between the Company and a range of stakeholders, including its largest shareholder, Fosun Tourism Group and its affiliates (“Fosun”), the Company’s core lending banks and a majority of the Company’s 2022 and 2023 senior noteholders.’
• TCG adds ‘these discussions include a recent request for a seasonal standby facility of £200 million, on top of the previously announced £900 million injection of new capital.’
• The group says ‘the recapitalisation is expected to result in existing shareholders’ interests being significantly diluted, with significant risk of no recovery.’ It says it ‘will provide further updates in due course’.
• Thomas Cook is now said to be in a race to secure the first £200m of its £1.1bn fund raise. It is said to have only ‘days’ in which to do so. The FT quotes a source as saying ‘the banks walked away because they weren’t happy that they would put in £900m only for the company to go bust in a year’s time.’ The Times quotes a source as saying ‘we are rapidly approaching an insoluble impasse precipitated by the banks’ demand for another £200 million of headroom. RBS are pushing hardest, so you could end up with a state-owned bank landing another government department with the cost of repatriating thousands of holidaymakers, not to mention dealing with the fallout from 9,000 UK job losses.’
• TCG is reported to have put its Nordic airline & tourism business up for sale as it attempts to buy time as it tries to restructure its debts and attract additional capital.
• Sky reports that the group is in ‘emergency talks’ and suggests that its now-£1.1bn refinancing is by no means nailed down. Sky says ‘AlixPartners, which has been advising the company for several months, is expected to be appointed to handle any insolvency process should the rescue efforts fail.’
• Should a repatriation of the group’s c150k UK holidaymakers that are abroad at any one time become necessary, it would be the largest the aviation authorities have ever had to undertake. Thomas Cook’s shares held steady at 4.5p yesterday. They were some 125p only last year.
• Thomas Cook has previously said that it had reached ‘substantial agreement’ on plans whereby its largest investor, Fosun of China, would inject c£450m in new money and take 75% of TCG’s tour operating business and 25% of its airline. EU rules prevent non-EU companies from owning more than 25% of an EU-based airline.
• A panel of bankers intends to meet on Monday to decide whether or not certain TCG debt-investors are due to receive a pay-out if the company were to fail.
HOLIDAYS & LEISURE TRAVEL:
• Home rentals company Airbnb has said that it plans to list its shares on stock exchanges next year. The group generated revenues of $1bn last quarter.
• STR has reported that the US hotel industry saw occupancy levels unchanged in the week to 15 September with room rates up 0.8%. REVPAR was similarly up 0.8%.
• Airbnb reports revenue of over $1bn in Q2 but gave no details on profitability. The company is expected to IPO next year and has announced a new multimillion-dollar marketing campaign with ads running on TV and digital platforms. It also said it passed a milestone of having more than 7 million Airbnb listings in over 100,000 cities around the world.
• Airbnb was valued at around $31bn during its most recent funding round. Highly anticipated listings from Uber and Lyft performed badly in recent months.
• According to the BBC, Germany’s CDU has proposed doubling the air tax on domestic flights as part of its goal to reduce the country’s CO2 emissions. Currently, Germany levies a tax of €7.38 (£6.50) per ticket on domestic flights.
• Airbus forecasts the world’s fleet of commercial aircraft is set to double to almost 48,000 by 2038, of which 39,210 aircraft will be new. The company claims this will result in the need for 550,000 new pilots and 640,000 technicians with traffic growth of 4.3% a year.
• Tottenham Hotspur is reported to have refinanced more than £600m of loans taken out to build its new stadium.
FINANCE & ECONOMICS:
• The Bank of England has cautioned that extended uncertainty over Brexit could damage the UK economy further. As expected, it yesterday held UK interest rates at 0.75%. The Bank maintains that prolonged uncertainty means that rates could be held lower, for longer.
• Sterling up at $1.2551 and €1.1348. Oil up at $64.70. UK 10yr gilt yield down 5bps at 0.64%. World markets higher yesterday but US mixed and Far East mixed in Friday trade.
• Brexit & politics:
o Their lordships have retired to consider their verdict as to whether the government broke the law in proroguing parliament for 5wks. The FT says ‘you will not find a soul in the long corridors of Whitehall who believes that the prime minister they are sworn to serve is telling the truth.’
o The European Parliament has voted 544 to 126, with 38 abstentions, to grant the UK more time, should it request it, in order to finalise the Brexit process. Unsurprisingly, Ts & Cs apply.
START THE DAY WITH A SONG:
Yesterday’s song was Never Let Me Down Again by Depeche Mode. Today who sang:
Thought I heard you talking softly,
I turned on the lights, the TV, and the radio
Still I can’t escape the ghost of you
RETAIL WITH NICK BUBB:
Planet ONS Watch: We flagged yesterday that, in the real world, as per the overall BRC figures for figures for August (the 4 weeks to August 24th), Retail Sales were slightly disappointing last month, but “seasonally adjusted” life was fine on the High Street on that strange parallel world, the Planet ONS (aka the Office of National Statistics in sunny Newport), via yesterday’s official Retail Sales figures for August…As usual, City economists (who treat the highly dubious ONS figures as the gospel truth) swallowed the 0.2% dip in month-on-month seasonally adjusted sales volume, which was much as expected, without digging any further. We focused, as usual, on the year-on-year non-seasonally adjusted sales value figures, plus the controversial split between Large and Small Businesses and the overall August +2.8% outcome (slightly down on the +3.8% in July) would have actually looked a bit
Applegreen: The interims from Applegreen (the Irish based motorway service station operator that bought Welcome Break a year ago) are very strong, with underlying EBITDA more than trebled to Eur 59m and the company has flagged that the Welcome Break synergies are going to be even bigger than it had expected.
BDO High Street Sales Tracker: We flagged on Wednesday that the John Lewis sales figures for last week were very poor again, but today’s BDO High Street Sales Tracker for medium-sized Non-Food chains (which has been reporting suspiciously good progress in recent weeks) is again not too bad…In w/e Sunday Sept 15th, BDO Fashion sales were up by 2.6% LFL (including Online)…And total BDO LFL sales (including Homewares and Lifestyle sales, as well as Fashion) were up by 1.4% last week (down 3.6% in Store sales, but up by 15.3% in Online sales).
Trade Press: The main News story in Drapers magazine today is that towns overlooked for the Future High Streets Fund shortlist have accused the Government of “naked political electioneering” in the selection process. In terms of features, Drapers look at how the quintessentially Cornish brand Seasalt is making waves under CEO Paul Hayes and also look at what JD Sports is doing right at a time when the rest of the High Street is struggling. Drapers also flag that sustainability and authenticity are the big movements in the denim market at present and that the new Edinburgh St James shopping centre is set to shake up the steady and stable retail scene in the Scottish capital.
News Flow Next Week: As the Labour party conference gets underway in sunny Brighton, all eyes in Westminster will be on the Supreme Court decision early next week on the legality of the prorogation of Parliament, but there is again plenty going on in the Retail sector next week to distract us, kicking off on Tuesday with the Card Factory interims, the Hotel Chocolat finals and the Moss Bros interims. Wednesday then brings the Boohoo interims, the Joules AGM and the Sainsbury Capital Markets Day, with the DFS finals following on Thursday.