Langton Capital – 2019-11-14 – PREMIUM – Young & Co, Time Out, hotel supply, JDW, discounts etc.:
Young & Co, Time Out, hotel supply, JDW, discounts etc.:
PREMIUM EMAIL – PLEASE DO NOT FORWARD:
A DAY IN THE LIFE:
I was pondering the various questions that I’d been asked by our kids when they were little the other day (does air fall downwards etc) when I remembered a good one, it was ‘does the future exist?’
To which the answer, at least until you think about it, is ‘of course it does.’
But can you prove it?
Well, certainly not to a five-year-old (or however old the particular child was at the time) and, as the future becomes the present before you can actually see it, you can’t really touch it or bottle it when it’s in its ‘future’ state.
However, if we can use the past to predict the future (a very big ‘if’) then the future probably does exist but, after being asked the ‘how’ and ‘why’ questions a number of times, I seem to remember concluding that I didn’t know whether it was real or not.
Which led on to the question ‘well, why should I go to school, then?’ at which point it seemed sensible to fall back on that old parenting staple, ‘because I said so’.
Anyway, we’d better move on to the news:
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BOOK REVIEW: JUST BORIS – SONIA PURNELL – 2011. Written by a former colleague who worked with Johnson at The Telegraph in the 90s, this book pre-dates his second term as London Mayor, the Olympics, the Referendum and his Premiership. There are some interesting insights. 14 Nov 2019:
With friends like these?
• Boris Johnson’s former boss at The Telegraph, Max Hastings, famously said ‘almost the only people who think Johnson a nice guy, are those who do not know him.’
• Ms Purnell worked alongside Johnson in Brussels in the 90s. She knows him.
• Fund manager Schroder & Co says we spend more time choosing our biscuits than we do deciding our financial futures. The same would appear to be true when we choose our political leaders.
• Ms Purnell says that, even when she knew him in Brussels, Johnson was an infamous philanderer, was ruthless and ambitious and was characterised by an ‘ideological emptiness’.
• Johnson abandoned his mother’s Catholicism and, per Purnell, managed to be both entitled & insecure at Eton. He dropped his name, Alex, and became Boris, the young fogey with Brideshead affectations.
• He was Captain of the Wall Game, Editor of the School Mag & hung around with the most popular pupils in the school.
• He was a showman, he was not serious, he ‘got away with things.’ Non-Etonians were ‘tugs’ & state-school pupils were ‘stains.’
• At Oxford, he was never a big drinker or a stoner. He didn’t like the loss of control. He was a ‘glamorous blond chancer’. He acquired a well-connected girlfriend and married her. His father-in-law had him as ‘wilfully scruffy’ and ‘rapacious’.
• At 21 he was virtually the finished article. He relied on a ‘disciplined and deluded collection of stooges’ (Boris’s own words) as he didn’t do detail or boredom.
• He was good at languages & the classics but poor at maths, detail and stickability.
• Boris joined The Times but was sacked for fabricating quotes. He moved to The Telegraph and went to Brussels in 1989. Euroscepticism became his stock in trade but he ‘didn’t immediately shine’.
• He was a flatterer and a user and blended humour with exaggeration to make copy. He feigned hangovers and downplayed his good French to gain advantage.
• He overegged stories ‘to a degree that was dishonest’ but he was having fun and, more importantly, he wasn’t bored
• He was ‘irresponsible’ and invented stories. He fuelled UKIP, neglected his marriage, got divorced & married his pregnant girlfriend, Marina.
• The family returned to the UK in 1994. Their joint income was £600k plus by the late-90s. They had cleaners, au pairs and, soon, four kids.
• Johnson ‘doesn’t do friends.’ He finds it easier to be intimate (often very intimate) with women.
• He let down his supportive boss, Max Hastings, and moved to The Spectator. This was the era of pillar box references, watermelon smiles, puffing coolies and other stuff that would get this email fire-walled etc.
A foot in both camps:
• He doesn’t laugh, he doesn’t know what he thinks, he is not loyal. He found his calling & became an MP in 2001 but retained editorship of The Spectator (groping allegations, crazy parties etc.)
• He wrote about cars for GQ, roads ‘opened their legs’ to him, rules were for other people, he ran up dozens of parking fines.
• His discussion with the soon-to-be jailed Darius Guppy (an Oxford intimate) about getting a News of the World reporter beaten up (initiated by Guppy) was taped & is available on the Internet.
• Both an MP and a paid journalist, Johnson performed his various jobs with ‘maximum idleness’. He appeared on Have I Got News for You 7x and his appeal widened. Nothing stuck to him.
• He was forgiven his late copy, his failure to attend votes in the Commons etc as he had a ‘curious hold over people’. They ‘fell in love with him’. They didn’t want to lose his (always illusory) friendship.
• This is going on a bit so we’ll finish it off tomorrow.
JD WETHERSPOON – Q1 CONFERENCE CALL:
Following the release of its Q1 trading update this morning, JD Wetherspoon hosted a conference call for analysts and our comments thereon are set out below:
• The last 7wks have slowed a little; what is your expectation for the full year? They are tracking below 5% and could trend towards inflation. However, this is just a short period of time. The co will know more by the half year.
• Outlook for tax? Rate this year will drop by 1pp. Cash tax could be c£2m lower than last year.
• How is the £1.39 per pint promo going? It’s ‘not that big an item’. It didn’t really hit margin.
• Sales mix? Not much changed over the period.
• Menu prices? Not much change.
• Food costs? Pork & fish up a bit. Broadly as anticipated overall. Total F&B costs running ‘at around inflation’. Repairs are up a bit, utility costs are a shade ahead of inflation.
• Wages? Big rise at the back end of next year. Probably not move them again until next April – hence no ‘new inflation’
• Trading is ‘in line’. What is ‘in line?’ Post-IFRS16 profits estimated £90m, pre-IFRS16 profits c£104m.
• Will be a fuller update on IFRS16 at the H1 numbers.
General market conditions:
• How is the wider market? Perhaps a slight slowdown (in line with the Coffer Peach Tracker). But this is just a short period of time & changes are not clear yet
• Coffee still selling well.
Balance sheet issues:
• Do you expect many disposals in FY20? Only four so far. Around £1m of losses on disposal. There are a ‘handful’ currently for sale. Could be five or six for the year.
• What about leasehold to freehold conversions? Done 43 in Q1. Could be around 60 for the year. They are opportunistic.
• Aim for a 6% yield on freehold reversions. Varies by region & property-type. Have averaged 5.5% so far.
• This was a brief conference call.
• The main point was that the company confirmed it was likely (not new news) that LfL sales would slow for the rest of the financial yea. Indeed, CEO John Hutson suggested that LfLs could trend towards inflation.
• They may be stronger than that but, as the group’s margins are very low already compared with its competitors and its pubs are very busy, it’s hard to pull the ‘price’ lever or to get more customers into its venues from the given starting position.
• We nonetheless believe that, whilst JDW is likely to track the Coffer Peach Tracker (which was 0.6% lower for the month of October), it may remain one, two or three percentage points above the market.
• It is fair to say, however, that JDW could lose some customers to supermarkets if the economy slows.
• JDW continues to buy in freeholds and to buy its own shares on an opportunistic basis. This will increase debt but, at least in the case of its reverted freeholds, JDW is simply replacing one contractual cost for another – and it is increasing its flexibility as to what to do with the asset in the future into the bargain.
• The group hosts its AGM on 21 November. PIRC suggests that shareholders vote against the group’s accounts but, with 31.8% of the group’s equity to his name, Tim Martin is unlikely to take that advice.
• As mentioned earlier, JDW is a great company that knows its market well. Shareholders may from time to time believe, with some justification, that the company occasionally behaves as though it did not have external shareholders, but this is not new.
• The group has done and is doing well. But it is not currently cheap, and its low margins could prove to be a point of weakness if sales growth stalls against the background of what the company has called ‘continuing political problems’.
PUBS & RESTAURANTS:
• Young & Co has reported H1 numbers to end-September saying that revenues rose by 7.3% at £168.2m with adjusted PBT of £30.9m, up 5.2%.
• YNGA reports adjusted EPS up 3.7% at 42.85p with a H1 dividend up by 6.0% at 10.57p. The group says that LfL sales grew by 1.1% ‘in our premium, well-invested managed pub estate reflecting the challenging prior comparatives from the hottest English summer on record and England’s FIFA World Cup performance.’
• YNGA CEO Patrick Dardis comments ‘I am very pleased with the performance of our business during the first half of the year. In what was a challenging period up against tough comparatives, we continued to grow profits, make acquisitions, invest organically and increase the dividend: a reflection of the consistent execution of our strategy and the hard work of our teams throughout those six months.’
• Mr Dardis says ‘the start of the half year was challenging as the poor and unpredictable weather was a far cry from last year’s exceptional early summer sunshine. However, the summer Bank Holiday temperatures and late-September sunshine contributed to strong like-for-like sales growth in the second 13 weeks which helped to balance the first half, with like-for-like sales finishing up 1.1%.’
• As regards the future, YNGA says ‘our expectations for the full year remain unchanged and we remain confident in our ability to deliver long-term growth and sustainable superior investor returns.’
• YNGA says LfL sales for the last 13wks are up 5.1% on a LfL basis. The group says ‘in the second half of the year we will see further benefit from the Redcomb pubs through Christmas until the acquisition annualises at the end of January.’ It says ‘we hope that the upcoming general election will bring an end to the current paralysis at Westminster.’
• The upcoming General Election’s timing, Young & Co says ‘is far from perfect.’
• Time Out Group has reported that its market in Montreal is now open.
• Tortilla has reported that it is eyeing a dark kitchen location.
• EPOS specialist WRS Systems has introduced a new kiosk that should help Costa Coffee speed up transactions. There are currently eight stores in testing. WRS says ‘providing innovative, reliable and secure EPOS solutions for our clients is at the heart of all that we do.’ The company says it provides ‘cutting edge innovation and a philosophy of collaboration at every stage in POS solution development; from design to service, delivery and support. These are all key requirements for our clients across hospitality and retail, and essential in delivering this revolutionary new kiosk for Costa Coffee.’
• Striking McDonald’s workers in the UK are demanding £15 per hour alongside the abolition of youth rates.
• CGA’s On Premise Measurement data suggests that wine sales in the on-trade have slipped by £146m in the last year. The volume of wine sold is down by 7.7% with sales down by 4.5%. CGA says its data ‘lifts the lid on how wine sales are leaking away to other categories, including cider, craft beer and soft drinks – and how each has different appeal to different consumer groups.’
• Subway has announced that John Chidsey is to take over as new CEO. The group has been without a CEO since Suzanne Greco retired in June 2018.
• The Welsh Government is to introduce a minimum price per unit of alcohol of 50p from 2 March next year reports Poppleston Allen.
• Discounts still available. Prezzo 40% off mains, Bella Italia second main for £1 and Café Rouge 25% off food.
• NRN in the US reports that a company by the name of Misfit Media now says that it can calculate the exact return on investment generated by advertising on social media platforms. The word ‘exact’ sounds a little suspicious. Misfit says ‘we can tell who went through the door, how much money they spent, and the total revenue earned from an ad campaign.’
• Raymond Blanc’s Belmond Le Manoir aux Quat’Saisons has invested in composting equipment that should save it £9,000 a year in food disposal fees. Its rocket composter can handle up to 2.5 tonnes of food matter a week.
• The Alchemist is to open its first site in Scotland within the Edinburgh St James development next year.
• NPD has reported that visits to bakery outlets are running up 1.8% this year.
• Patty & Bun is to reopen its Liverpool Street unit as a larger venue early next month. The revamped site will feature seating for 40-50 people.
• GfK has reported on Black Friday which, this year, falls ‘perfectly’. It is always the Friday after Thanksgiving, which is the last Thursday in the month. This year it falls almost as late as possible, the key thing being that it comes after pay-day. GfK points out that, in the US, the day is bigger than Christmas and the January sales. GfK concludes ‘it’s happening, so don’t fight it.’
• Trend or fad? Mars is to introduce a vegan version of its Galaxy chocolate range. Premier Foods has introduced a ‘Plantastic’ range. Burger King is offering meat free burgers and the sales of Gregg’s vegan sausage rolls are legendary. Burger King has announced that it will use The Vegetarian Butcher as the supplier for its first meat-free patties.
• Sri Lankan restaurant group The Coconut Tree will shortly open its sixth site, in Bournemouth.
• The Local Data Company has been looking at the impact of the Mothercare closures coming as they do on the back of closures by Thomas Cook, Patisserie Valerie and other High Street operators. It quotes the Centre for Retail Research as saying that 36 High Street companies have failed this year so far, affecting 1,630 stores.
• JD Wetherspoon shares closed up 2.7% yesterday on the back of its Q1 trading update.
• Microtill is to feature its new ‘Kiosk solution’ at the upcoming ‘Restaurant & Bar tech live’, at London’s Excel. MD Alan Wisdom says ‘the move towards customers now taking charge of their own experience is becoming more commonplace, along with a significant shift in card and cashless transactions overtaking cash for the first time last year’.
HOLIDAYS & LEISURE TRAVEL:
• STR has reported that supply across the London hotel market is up by 1.6% year on year with demand down by 0.3%. Occupancy is down by 1.9% (taking into account the extra supply) and rates rose by 1.7%. REVPAR for the month was down by 0.3%.
• The European Travel Commission has suggested that a ‘no deal’ Brexit would cause a 7% drop in UK outbound trips in 2020 and an 8% decline in 2021. It says this would be a ‘permanent downward effect’.
• Private wealth firm Boodle Hatfield has suggested that there are 210 new hotels in the development pipeline for London. It says investors remain optimistic about the capital’s market potential for growth post-Brexit. The spectre of oversupply remains a real one.
• Footfall at Edinburgh Airport fell by 6.1% last month as Ryanair withdrew a route to London Stansted.
• Mayor Luigi Brugnaro has said recent flooding in Venice will leave a ‘permanent mark’.
• The BBC has reported that toy sales are down 8% this year to date. It concedes that 30% of the total spend on toys comes next month.
• Walt Disney Co shares rose 7.5% yesterday to a record high after the company said that its new streaming service, Disney+, had been met with ‘extraordinary consumer demand’. Some 10m customers signed up on the first day.
FINANCE & ECONOMICS:
• The CPI in the UK fell to 1.5% in October, its lowest level in nearly three years. Utility prices fell but clothing prices rose.
• The NIESR says ‘headline CPI inflation decreased moderately to 1.5 per cent in the year to October 2019.’ It adds ‘our measure of underlying inflation, which excludes extreme price movements, contracted by 0.1 percentage point to 0.9 per cent in October. Large price decreases in both energy prices and the furniture, household equipment and maintenance categories contributed to the decline in inflation.’
• NIESR concludes ‘we expect CPI inflation to settle at or below the Bank of England’s target of 2 per cent.’
• Sterling down vs dollar at $1.2839 but up vs Euro at €1.1674. Oil up at $62.76. UK 10yr gilt yield down 5bps at 0.76%. World markets broadly down yesterday with Far East lower in Thursday trade.
• Politics & Brexit:
o Former justice secretary David Gauke says that moderate Tories should vote for the Liberal Democrats.
o Tesla says that, in choosing Berlin for its European manufacturing centre, it rejected the UK because Brexit ‘made it too risky’.
o Donald Tusk has criticised some Brexiters who are ‘longing for the Empire’.
o Nigel Farage is still refusing to stand down his candidates in marginal Labour seats.
o Commentators suggesting that ‘getting Brexit done’ is misleading as either discussions will last years or we may crash out without a deal at the end of next year.
START THE DAY WITH A SONG:
Courses and mock exams getting in the way. The song will be back next week.
RETAIL WITH NICK BUBB:
• Burberry: Ahead of today’s interims (for the 6 months to end September), the City has been concerned that the recent disruption in Hong Kong could hold back the recovery of the group, but adjusted operating profits of £203m are said to be in line with guidance, despite the pressure in Hong King and the full-year outlook has been maintained (although Burberry do highlight that Hong Kong is a “higher margin market”). There will be plenty to discuss at the 9.30am analysts meeting.
• Card Factory: After the profit warning from High Street rival The Works last week, the City was a bit nervous about what Card Factory would have to say in its Q3 trading update today (for the 3 months to Oct 31st) and although Store LFL sales were just 0.4% down (which could have been worse), the bears will note the statement that, ahead of the key Christmas period, full-year profits are only expected to be “broadly” in line with the Board’s previous expectations.
• Planet ONS Watch: In “the real world”, as per the overall BRC-KPMG figures for October (the 4 weeks to October 26th), Retail Sales were a bit brighter last month, given the impact of more autumnal weather and increased discounting, but we will find out at 9.30am this morning what “seasonally adjusted” life was like on the High Street on that bizarre parallel world, the Planet ONS (aka the Office of National Statistics in Newport), via their official Retail Sales figures…Now, City economists (who still, unaccountably, treat the dubious-looking ONS figures as the gospel truth) generally expect a small rise of 0.3% in month-on-month seasonally adjusted sales volumes, but our friends at Capital Economics have pencilled in a flat October (to give year-on-year volume growth of 3.5%), for what it’s worth. We will be ignoring the silly sales volume figures and focusing, as usual, on the
• TV Watch: We flagged yesterday that this time next year Ocado/M&S and Waitrose will be going at it hammer and tongs, as they battle to win Online Grocery customers, but, in the meantime, M&S has been trying to lower its prices, so it will be interesting to see what the Channel 5 documentary at 9pm tonight makes of the value offered by M&S relative to Waitrose: “M&S vs Waitrose: Which is better value?”.
• News Flow This Week: The DFS Furniture AGM is being held at 2.30pm today (at HQ in sunny Doncaster) and the Walmart/Asda Q3 results will be out at lunchtime today.