Langton Capital – 2019-09-24 – PREMIUM – TCG, TUI, DPP, Ten, Tasty, Everyman, AG Barr etc.:
TCG, TUI, DPP, Ten, Tasty, Everyman, AG Barr etc.:
PREMIUM EMAIL – PLEASE DO NOT FORWARD:
A DAY IN THE LIFE:
I know we need a bit of rain, but did it all need to fall on me personally as I was walking to work this morning?
Because, whilst an umbrella is useful, mine seemed to lose its protective powers as it was assaulted from above and below, from the left and the right and I entered the office looking like a drowned rat with a backpack.
And wildly splashing motorists didn’t help but, fortunately, there weren’t any electrical devices in the bag as they would likely have been ruined and the insurance claim would have been rejected as a fabrication.
Have you heard of gravity, Mr Brumby? Rain doesn’t blow upwards they would have told me and yet here we are; I’m wet from head to foot despite the laws of physics assuring me that I should be dry. Busy this morning so on to the news:
ADVERTISE WITH US:
Langton’s free email now carries adverts. See front page of website for today’s copy & contact us for further details.
ESPORTS – A NEW AREA OF GROWTH OR A LICENSE TO LOSE MONEY? Or, perhaps the one in the short term and the other in the long. 24 Sept 2019:
• Newzoo has estimated the eSports industry created $660m in revenue globally in 2017 (+34% year-on-year), with further growth to come
• An estimated 385m people watched eSports in 2017 (with 191m regular viewers)
• The UK lags other EU nations in terms of eSports infrastructure and professional gamers
• However, there can be no guarantees that the first players into an industry will be the ones that make the money
• Success may be a long time coming. Indeed, it may never come.
Where are we now?
• Gfinity is the only UK listed eSports firm. They built the first UK eSports dedicated arena and are investing a lot into the industry
• The company is loss-making and has required (and does require and will continue to require) capital funding in order to continue trading
• Its shares were over 30p in 2017. They are now 4p.
• Elsewhere, Game Digital is rolling out its Belong ‘social gaming’ division in order to drive footfall into its shops
• The Silvertown development is set to include the largest European eSports arena
• Loading bars are a London bar chain that incorporates this trend in a more conventional pub setting
What does it mean?
• Groups like Gfinity need to build the entire UK eSports ecosystem
• There is the risk they do the heavy lifting just for someone to pop along and benefit from their work.
• However, this is a real market. Young people don’t just play games – they enjoy watching others play them too
• Experiential leisure and competitive socialising are growing in popularity
• There has been a gradual trend to drinking less, and the demographic interested in eSports has been notoriously hard to reach out to
• The group that play (and watch) games can be targeted by advertisers at new, esports venues
• Gamer-friendly bars and eSports, in general, could prove invaluable avenues to reach this demographic
Where to from here?
• If we, Gfinity or anybody else could read the market perfectly, then we would be there already.
• There are many, however, that believe the market is more likely to persist than to disappear.
• That said, Gfinity, as the major listed player, continues to lose money.
• As at its H1 numbers, it had lost £29.4m since incorporation and was losing around £10m to £12m per annum
• The group reports full year numbers in mid-October. It raised a further £5.25m in capital in July this year at 4.5p per share
• For many, at this stage, the risks perhaps outweigh the benefits
GENERAL NEWS – PUBS & RESTAURANTS:
• DP Poland has reported H1 numbers saying that system sales are up 10% and that like-for-likes returning positive from March with more sub-franchisees now in place. The company is also appointment a General Manager in Poland
• DPP reports system sales of PLN 41m (37m in H1 2018). LfL sales were down 1% for the 6mths (lapping TV advertising last year) but are positive in Q2.
• DPP says LfL sales were +1% in July and +8% in August (vs hot weather last year – but also the tail end of the World Cup).
• DPP reports that group performance is in line with management expectations for 2019. It has opened 4 new stores in H1 and has 69 open at present. Chairman Nick Donaldson says ‘DP Poland delivered continued expansion and growth in System Sales across both corporate stores and commissary during the first half of the year, notwithstanding the strong comparatives driven by TV advertising in January and February 2018. March to June 2019 saw positive growth in both like-for-like System Sales and like-for-like order count. Pleasingly, System Sales growth has continued in July, August and September.’
• Mr Donaldson reports ‘we are delighted to announce the appointment of Iwona Olbrys as our new General Manager in Poland, succeeding Peter Shaw.’
• DPP continues ‘the recent headwinds affecting the Polish food delivery sector, including food and labour costs, and the impact of the aggregators on the sector, continue. However, we remain confident that, underpinned by our well-invested infrastructure and world-renowned service and products, Domino’s Pizza in Poland will continue to grow in this environment.’
• Tasty has reported H1 numbers saying revenues were £21.1m, down from £23.0m last year with adjusted EBITDA of £0.1m and a loss after tax of £0.8m.
• Tasty says ‘the casual dining market continues to face headwinds and the uncertainty of Brexit means that 2019 remains a challenging year. The Group’s sales performance has been weak despite benefiting from weaker comparatives following last year’s extreme weather conditions and the World Cup.’
• Tasty says ‘the Group is well positioned, with a rationalised estate, new operational structure and a heightened focus on cost controls.’ It concludes ‘the Board currently expects adjusted EBITDA performance for the full year to remain in-line with expectations.’
• Hotel Chocolat Group has reported H1 numbers with revenues up 14% at £132.5m and PBT up 11% at £14.1m. Angus Thirlwell, Co-founder and Chief Executive Officer, says ‘I am pleased to report another year of significant progress for the Group with profits growing slightly ahead of expectations.’
• AG Barr has reported H1 numbers saying revenues fell to £122.5m from £136.9m with normalised PBT of £13.5m vs £18.2m last year. Roger White, CEO, says ‘our focus remains on delivering long-term growth.’ He adds ‘despite continuing economic uncertainty we expect to meet the revised profit expectations communicated in July.’
• Discounts still prevalent. Prezzo 40% off mains, Toby (M&B) also 40% off mains with Pizza Express 25% off food.
• We might need cheaper food as the fact that replacement flight prices post TCG collapse have rocketed means that cash will be drained from consumers’ pockets over the short term.
• Shepherd Neame has announced that, after 15 years as Chairman and 18 years as a Director, Miles Templeman has informed the Board that he intends to step down as Chairman. He will do so at the Company’s AGM in October 2020. At that time Richard Oldfield will succeed Miles as Chairman.
• Anheuser-Busch InBev has priced the upcoming IPO of its Asia-Pacific business at the lower end of the projected range. The group will raise some $5bn from the sale of shares, less than it had hoped when first mentioned in July.
• The UK chancellor is being urged to ease the burden of business rates after new research has shown that councils are sending bailiffs to 310 companies a day over arrears.
• The founder of Wagamama, Alan Yau has announced his intentions to open three new restaurants in London during 2020.
• The Oakman Inns pub group are hosting their fifth kids rugby festival on Sunday 20th October, with 600 children set to participate.
• Budweiser has announced it will phase out single-use plastic rings from its UK-produced beer brands by the end of 2020.
• Customers have complained about McDonald’s third McDelivery Day, with dinners stating they were duped into ordering a minimum of $10 worth of food at participating restaurants only to get no merchandise when their meal arrived.
• Miles Beale, the CEO of the Wine and Spirits Association (WSTA), claims the UK Government has neglected the importance of the wine sector to the country’s economy. Regarding the possibility of a no-deal Brexit, Mr Beale said: ‘The timing could not be worse, warehouse space is already under pressure in run-up to Christmas and Government seems hell-bent on failing to act on the concerns of industry.’
• Beer Hawk FRESH, a service that delivers cold-chain beer in kegs, cans and bottles, same-day to London customers, has launched this month.
• Cask Marque is to hold its annual Cask Seminar at the Lyric Theatre on Thursday.
THOMAS COOK COLLAPSE – SUBSEQUENT EVENTS:
Likely developments in the very short term:
• ATOL protected customers who are overseas will be repatriated.
• Non-bonded passengers will be helped in the short term but, for those arriving back in the UK after the first week of October, there will be little help.
• Bonded customers who have not yet flown will be financially compensated – but, as they will only get their money back (and after a delay), they may lose the chance of a holiday.
• Prices will spike. Airline capacity has been reduced due to 1) the TCG planes being grounded and 2) any loose aircraft being roped in to the rescue effort.
Business developments over the medium and longer term:
• TUI and Dart Group shares have reacted positively – and with good reason.
• The market has tightened materially. Prices will be firm for some time and margins will be higher.
• However, there will be a number of 30-something and 40-somethings out there who will already be plotting their paths to packaged-holiday greatness
• Capacity will edge back in – and, as the TCG planes are unlikely to be grounded for long (and the capacity in resort isn’t going anywhere), this could be rapid.
• Although the TCG is on a much larger scale than most prior collapse, this is the stuff that cycles are made of
The blame game:
• Pretty much everyone will look at this through the prism of their own self-interest.
• The management will blame, where they can, external factors.
o And there have been a number of negative developments ranging from Brexit booking uncertainty, volatile Sterling, higher oil prices and disturbances in resort through to hot weather last year and the World Cup.
o However, weather comes and goes, the World Cup impacts bookings every 4yrs and other factors (such as Brexit) are industry-wide – and TUI and Dart Group seem to be in a reasonable position.
• Brexit-focused politicians:
o These will either say it is, or it is not (depending upon their viewpoint), the fault of Brexit-related uncertainty.
• Left versus Right politicians, free market versus interventionist.
o The Labour Party has pointed out that management took out £20m or so in bonuses over the last 5yrs and that >20k workers, perhaps 9k of them in the UK, will be losing their jobs. The government ‘should have stepped in’.
o The Tory Party will say these are market forces and that moral hazard has to be avoided. Grant Shapps said that, if HMG bailed the company out, we ‘could just be here again tomorrow’.
• Populists and hindsight merchants:
o Populists will side with stranded holidaymakers. Boris Johnson has said that it was time to ‘reflect on whether the directors of these companies are properly incentivised to sort such matters out.’ Brexit-related uncertainty doesn’t get a look in.
o Mr Johnson says ‘obviously our thoughts are very much with the customers of Thomas Cook, the holidaymakers, who may now face difficulties getting home. We will do our level best to get them home.’
o There will be stable doors slammed after the horse has bolted. Business Secretary Andrea Leadsom (famously called the ‘dimmest bulb in the Cabinet and a firm remainer turned Brexiteer) has said she will write to the Insolvency Service to ask them to ‘fast-track’ their investigation into TCG.
Reaction in the trade & elsewhere:
• Not that this was entirely unexpected but there is understandable shock and sadness.
• CEO of the UK Civil Aviation Authority Richard Moriarty says ‘news of Thomas Cook’s collapse is deeply saddening for the company’s employees and customers, and we appreciate that more than 150,000 people currently abroad will be anxious about how they will now return to the UK.’
• Labour shadow chancellor John McDonnell says ‘I think the government should have been willing to just do more: intervene, stabilise the situation and then allow a longer term plan to develop.’
• Staff meetings were held at 10am and 11am yesterday in Peterborough and Aldersgate
• Operators such as On the Beach, which used some Thomas Cook flights to service their customers, will face additional costs
A bit of lateral thinking:
• TUI and Dart Group are the obvious short-term beneficiaries.
• Longer term – but depending upon how quickly the reflagged TCG planes get back in the air – staycations could benefit.
• Reflagging etc could take some time. The aircraft are likely to be gathering dust for perhaps months rather than weeks
• The fact that ATOL protection does not extend to flight-only may not be lost on some customers
• There will be a difference between theory and practise on the ground. Consumers ‘should’ be repatriated – but if the planes are not available, then this won’t happen instantly
• Similarly getting one’s money back (2mths later) on a booked holiday isn’t the same as getting a replacement holiday
• The BBC reports that holidaymakers are already complaining that airlines are ‘cashing in’ on the holiday firm’s demise, and have raised flight prices accordingly. Whilst not pleasant, this is just the market in action. The BBC has quoted flights to Greece rising from £280 to £1,000.
• Consumers may also focus more on the different levels of protection offered via credit cards versus debit cards
• Cosmos has said that any of its holidays sold including a TCG flight will be safe. This is reassuring but physically getting the customer to resort could, however, be an issue.
• Aito chairman Derek Moore says ‘the knock-on effects will doubtless reverberate throughout the UK travel industry for many months, with a considerable human and business cost within the travel and hotel industries being part of the collateral damage.’
• Mr Fankhauser has been criticised for taking £8m out of Thomas Cook over the last 4yrs. PM Boris Johnson has suggested that the behaviour of the management should be investigated
• Incentives may have played a part here – but tour operating is a notoriously low-margin business and failures are common
• Travel Weekly and others have suggested that Thomas Cook bondholders could receive up to £201 million in insurance pay-outs as a result of the travel group’s failure.
• Towards the end, this group might have thought it was in its best interests that receivers were called in in order that they cash in their Credit Default Swaps
HOLIDAYS & LEISURE TRAVEL:
• Whitbread has announced a second purchase of a hotel portfolio in Germany. The company yesterday said that it had bought a portfolio of three independent hotels in Germany, from a private individual operating under the brand ‘Acomhotel’.
• WTB says this is its ‘second acquisition in Germany as part of a long-term investment plan in a highly attractive market. The acquisition consideration will not be disclosed and Whitbread’s return on capital from the acquisition is expected to be above its weighted-average cost of capital.’
• Mark Anderson, Whitbread’s MD Property & International, says the ‘announcement marks another important step in our ambitious growth plan for Germany, as part of our strategic priority to focus on our strengths to grow internationally. We have accelerated our investment in Germany through a mix of organic expansion, supported by focused and ongoing M&A activity.’
• TUI has updated on full year trading saying that the failure of TCG will mean that it has to re-book flights for some of its own customers.
• TUI says its vertically integrated business model is proving to be resilient.
• Hyatt has sold the 1,260-room Atlanta Regency for $355m to an unnamed buyer but will retain management of the property.
• Blackstone Real Estate Partners Europe has agreed to acquire 5 Greek hotel businesses from Louis Group for an enterprise value of €178.6m.
• Ten Entertainment has reported H1 numbers saying that revenue rose 9.6% to £41.4m with adjusted PBT up 14.2% at £7.3m. Chairman Nick Basing says ‘our growth strategy continues to generate record sales, profits and earnings for shareholders.’ He adds ‘we look forward to further tapping into the potential of our strengthening position in the rapidly growing experiential leisure market.’
• Ten CEO Duncan Garrood adds ‘we have had a strong first half delivering to our expectations. Operationally, we continue to make progress building an even better business and providing customers with an excellent experience. We are excited about our plans to unlock the potential inherent in the business.’
• Everyman Media has reported H1 numbers saying revenues rose 16% to £28.9m with adjusted EBITDA up 61% at £6.6m. CEO Crispin Lilly reports ‘the appetite for Everyman has never been stronger with our continued roll-out allowing us to deliver exceptional experiences to more audiences across the UK with our increasing footprint.’ Mr Lilly says ‘we are confident that there is significant room for expansion. We look forward to delivering our proven model to additional communities in both countries in the current period and beyond.’
• Sports Direct has proposed a preliminary and highly caveated possible 5 pence per share cash offer for Goals Soccer Centres.
FINANCE & ECONOMICS:
• Sterling lower at $1.2428 and €1.1307. Oil down at $64.41. UK 10yr gilt yield down 8bps at 0.55%. World markets mixed with Far East up in Tuesday trade.
• Brexit & politics:
o Labour’s John McDonnell ’s speech to the Labour Party conference committing the party to enhancing employment rights, shortening the working week and an increase in the National Living Wage to £10 per hour.
o Labour is also now committed to not giving an opinion as to whether it would like the country to stay in or to leave the EU.
o The UK car industry has said that there would be a ‘seismic’ impact on the European car industry if the UK left the EU without a deal.
o Michel Barnier has said it is difficult to see a way to break the Brexit impasse
o Brexit secretary Stephen Barclay has reiterated his promise that the UK will reach a deal that will see Britain leave the European Union without the so-called Irish backstop
o PM Boris Johnson has refused to answer questions about his relationship with a young businesswoman to whom state money was given in order to further her business interests. Mr Johnson was said to be a frequent visitor to former model Jennifer Arcuri’s flat in East London
START THE DAY WITH A SONG:
• Training courses intruding. Back soon.
RETAIL WITH NICK BUBB:
• Today’s News: The Card Factory interim statement trumpets “continued sales growth” but the 1.5% LFL sales increase was released in the pre-close update in mid-August and the new news is that underlying PBT of £22m was 8% down because of cost pressures. However, the outlook is in line with expectations and the 5p special dividend has been repeated. The Hotel Chocolat finals are also in line with expectations, with PBT up 11% to £14m after £1.2m of start-up losses in the US. The Moss Bros interims trumpet a return to LFL Store sales growth, but the dividend has been passed.
• The Grocer Watch: The widely followed Grocer “33” weekly supermarket pricing survey in Saturday’s The Grocer magazine saw Asda win again, convincingly. The overall Asda basket cost £58.01, £2.97 cheaper than second placed Morrisons. Tesco was third, on £62.02, Sainsbury was on £65.80 and Waitrose was way off the pace, as usual, on £71.72. And the separate Grocer “Mystery Shopper” weekly survey on Store Service and Availability was also won by Asda, as its 83,000 sq ft superstore in Perth came top, with 78 points out of 100.
• News Flow This Week: All eyes in Westminster will be on the Supreme Court decision at 10.30am this morning on the legality of the prorogation of Parliament, but there is plenty going on in the Retail sector to distract us from that. Tomorrow brings the Boohoo interims, the Joules AGM and the Sainsbury Capital Markets Day, with the DFS finals following on Thursday. And with the end of the month coming up quickly now, on the Economics front we also get the CBI Distributive Trades survey for “September” tomorrow, with the monthly GFK Consumer Confidence survey on Friday.