Langton Capital – 2020-01-27 – PREMIUM – Delivery, Just Eat, staffing, EasyHotel, coronavirus etc.:
Delivery, Just Eat, staffing, EasyHotel, coronavirus etc.:
PREMIUM EMAIL – PLEASE DO NOT FORWARD:
A DAY IN THE LIFE:
Don’t you find that the way Microsoft Office angrily underlines words it doesn’t like in squiggly blue (we disapprove) or red (we say you’re wrong) lines actually changes the way you write?
Because, while I know that it shouldn’t, it probably affects me.
For instance, on Friday, when talking about wires getting themselves knotted, I used the word ‘taffled’, which got me an instant red, such that I felt I had to change it to ‘tangled’.
But I’ve concluded that Microsoft was gaslighting me as ‘taffled’, whilst it’s apparently an East Yorkshire word and isn’t in the Oxford English Dictionary, is a perfectly valid way of describing an annoyingly knotted heap of wires.
Ditto ‘skeg’ (to look) and ‘siling (to rain heavily). However, whilst I’ve put both of those words into my MS Word dictionary, when I occasionally slip into writing ‘five ‘n twenty’ rather than twenty five, Microsoft still can’t help tutting its disapproval so what happened to vive la difference?
Anyway, we’ve got a full week stretching out in front of us so, without further ado, let’s move 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.
THE UK DELIVERY MARKET: The CMA is to investigate Takeover.com’s agreed purchase of Just Eat. Is it levelling the playing field? 27 Jan 2020:
State of affairs:
• On Friday, the CMA announced it is investigating the merger between Takeaway.com and Just Eat.
• The investigation aims to assess whether Takeaway.com would have re-entered the UK market if it had not decided to merge with Just Eat.
• As a result of the investigation, Takeaway.com now expects the timetable to be delayed by a week, with the offer becoming unconditional on 31 January 2020 and Just Eat’s delisting is expected on 2 March 2020.
• Whilst Langton is not an expert on competition law, this may be a little ambitious as to timing
What you’ve done, what you’re doing and now what you might have done…
• The CMA provided very similar reasoning for its investigation into Amazon’s investment into Deliveroo.
• This latter enquiry has now progressed into a ‘Phase 2’ investigation which has a statutory deadline of 11 June 2020, making ‘Phase 2’ nearly 6 months long.
• In this case, the CMA said its decision was based around ‘internal documents at Amazon that suggest it might have re-entered the UK delivery market in the future (pre-Deliveroo investment)’.
• Should the CMA take the investigation into the Takeaway.com/Just Eat merger any further, Takeaway.com’s 2 March 2020 deadline seems rather optimistic.
A repertoire of cases:
• As mentioned above, this is the second time the CMA has investigated a merger/acquisition based on a possible re-entry by the acquirer into the UK delivery market.
• Companies will look at these interventions and some may indeed think the CMA is using tenuous excuses to call for an investigation.
• In Amazon’s case, some may claim the CMA was fighting the good fight against exploitative big American tech companies wanting to create monopolies.
• However, with the Takeaway.com decision occurring just weeks later, those same voices may now be worried the CMA is building itself a precedent of punishing companies for having business plans for multiple scenarios, regardless of which option the business does ultimately take.
• Overly zealous Minority Report-style regulation may have a detrimental impact on corporate activity in the industry.
• And just what sort of principle is being set if companies are judged on ‘what they might have done?’
• This approach could potentially open a can of worms, and lead to similar intervention in other industries.
• We could even look at past mergers/acquisitions and wonder why they weren’t investigated.
• Stonegate ‘might’ have built its own managed operation rather than buy EI Group. CMA.
• Incumbents ‘might’ have grown organically rather than make bolt on acquisitions and even Chinese investor CKA might have constructed its own pub company rather than buy Greene King
The delivery market in particular:
• The CMA seems to be angling towards the suggestion that more and more capital should be sunk into the delivery market because it could be ‘uncompetitive’ to buy (or amalgamate) existing operators
• This puts a bit of a brake on economise of scale, synergy benefits etc. Indeed some may say that it runs the risk of perpetuating inefficiencies
• Regarding the delivery market, these two investigations will make potential acquirers more wary of entering the industry, lest they incur heavy costs to produce a deal that the CMA will ultimately overrule.
• Furthermore, in a fast-growing market such as delivery, basic business principles such as profitability are still yet to be properly worked out.
• Adding uncertainty with regard to the ability to make acquisitions to such an early stage industry risks harming its growth.
PUBS & RESTAURANTS:
• JD Wetherspoon is reported to have put up posters saying it wishes to limit parents bringing their children into its pubs to two drinks. A poster in a JDW pub in Gravesend, Kent, says that the nationwide guideline is intended to curtail ‘unruly behaviour’ by children left unsupervised. It has apparently been a crime since 1902 to be drunk in charge of a child under the age of seven in a public place.
• Sam Smiths pubs nationwide have banned the use of mobile phones and tablets. A pub was reportedly closed following the use of bad language. Credit cards and contactless payment has been banned in York where a number of Sam Smiths pubs remain shuttered for undisclosed reasons.
• The upcoming MCA & HIM Food To Go Market Report 2020 forecasts 2.7% growth for the FTG market in 2020, from £21.2bn in 2019 to £21.7bn.
• Cat Rock Capital, which owns 3% of Just Eat, has suggested that the CMA’s move to investigate the company’s takeover by Takeaway.com is ‘shocking and clearly unwarranted’. See our comments in the Premium Email. The CMA’s move could be interpreted as consistent with its behaviour regarding Amazon’s proposed shareholding in Deliveroo.
• Good services flash PMI for January raises hopes regarding a Boris Bounce.
• Rémy Cointreau has reported a fall in sales sending its shares down by 11.3% at one point on Friday. The company says it is facing a ‘quite negative situation’ in Hong Kong, where unrest has dampened economic activity.
• The BBPA has written to Home Secretary Priti Patel saying that any new immigration system needs to take the requirements of business into account. The BBPA says it needs to see:
o A minimum salary threshold can work if it is set at a level that supports the economy and protects wages
o Flexibility for skilled workers to enter the UK through a points-based system
o A temporary visa route which supports all sectors of the economy
o A radically reformed sponsorship process in place for the first day of operation
• The BBPA concludes ‘the economy needs a simple, streamlined and affordable system that meets business’ needs of all sizes, sectors and across all UK regions and nations.’ It says ‘we look forward to working with the new government to inform the detailed design of a new immigration system in a way that commands public confidence and supports the UK’s global ambitions.’
• Plenty of discounts still available. La Tasca 50% off food, Prezzo 50% off mains. Harvester & Frankie & Benny’s both 40% off mains. Vintage Inns 33% off food and Pizza Express 30% off food and drink.
• Loughborough University computer scientists have partnered with a food production automation company in order to teach AI robots how to differentiate between food items so they can make sandwiches.
• Molson Coors craft drinks arm, Tenth and Blake has agreed to buy Detroit’s largest brewer, Atwater for an undisclosed sum.
• Wendy’s has announced plans to expand into the UK, with a focus on Greater London.
• All Eat sites will be converted into Pret sites within the next six months, an acceleration on the original roll out plan.
• Italian wine production has decreased by 12% in 2019 due to unfavourable weather conditions.
• The Centre for Retail Research reports that around 9,950 jobs have been lost in the retail sector so far in 2020. The largest job losses have been threatened at Beales (not yet closed) and Hawkin’s Bazaar last week.
• The BBC quotes Begbies Traynor as saying ‘we’re going to see more retail failures this year. January is traditionally a really bad month for retailers and if retailers have not had a good Christmas, they will really struggle, particularly at the end of January when the quarterly rent bill is due.’ This despite Markit flash PMI numbers showing that optimism and forward orders had picked up since the election last month.
• The BBPA welcomes the new pubs relief which will see £1,000 being taken off the business rates bills of small pubs who qualify. The BBPA’s CEO, Emma McClarkin, said ‘On business rates alone, pubs pay 2.8% of the business rates bill, despite accounting for just 0.5% of turnover. Reducing rates for pubs is an important step in the right direction.’
• Iceland has launched a consultation with staff ahead of a wave of job cuts. The news comes days after bigger rivals Sainsbury’s and Morrisons said they will be shedding staff.
HOLIDAYS & LEISURE TRAVEL:
• WTTC has reported in wake of the coronavirus outbreak in China, that the average recovery time for visitor numbers following a viral outbreak is around 19 months.
• Public Health England reported that 14 cases of flu had been tested for Wuhan coronavirus as a precautionary measure on Thursday night but the locations were not divulged. All had been in Wuhan, the Chinese city where the virus first broke out, in the last fortnight.
• The Foreign Office has cautioned against visiting areas of China impacted by the Coronavirus. It has suggested Britons in the area should leave. Quite how they can do that, other than on foot, is unclear.
• The Chinese coronavirus outbreak has led to Royal Caribbean International cancelling Spectrum of the Seas’ sailing departure from Shanghai today.
• Connect Airways, owner of Flybe, are trying to borrow £100m as a short-term loan from the government. Connect has already agreed to put £20m extra cash into its troubled regional airline.
• EasyHotel reported full year numbers on Friday morning saying that revenue rose from £11.3m to £17.6m and EBITDA rose from £3.0m to £4.2m. however, the group wrote £3m off the value of its Ipswich hotel and incurred a loss before tax of £3.6m versus a profit of £0.9m in the prior year.
• EZH reports a loss per share of 2.7p (2018: positive 0.5p) and it is not recommending a final dividend leaving the 0.08p H1 payment as the only pay-out for the year. EZH reports that it has £115m of net assets on its balance sheet.
• EZH says ‘the UK hotel market has been challenging over the course of the year under review, with business confidence weak and consumer confidence impacted by political and economic uncertainties.’
• EZH says ‘looking to the year ahead, the political and economic landscape will continue to impact consumer confidence. However, the board remains confident that the easyHotel brand will continue to outperform the sector as consumers seek out best value for money and we extend our reach beyond the UK into mainland Europe more proactively.’ New chief executive Francois Bacchetta, currently easyJet country director for France and Italy, is due to join the hotel group in the spring.
• Jet2.com and Jet2holidays has added an extra 700,000 seats from Manchester airport this summer, with additional flights running to Tenerife, Fuerteventura, Majorca, Menorca, Alicante, Faro, Dalaman, Antalya, Corfu, Crete Naples and Bourgas.
• Hotelplan reports a 4% fall in turnover to €1.3bn for the year to October, citing ‘an extremely volatile environment’. Passenger numbers fell by almost 7% to 1.69 million.
• Boeing has announced the ‘ungrounding’ of the Boeing 737 Max ‘will begin during mid-2020’. This makes a summer return for the 737 Max unlikely.
• English Lakes Hotels Resorts & Venues has partnered with Hidden Lakeland to offer tailored tours for Japanese tourists from three of its hotels in the south of Cumbria, as part of its work with the Lake District Japan Forum.
• Moody’s has concluded that Uber Technologies’ divestment of its food delivery business in India to its local competitor Zomato is credit positive ‘because it will reduce its large EBITDA losses and is a step toward the company’s goal of achieving EBITDA profitability for the full year 2021.’
• Moody’s says ‘we expect Uber to generate large EBITDA losses over the next 12-18 months, although we expect losses to continue to narrow.’
• TikTok has signed a licensing deal with Merlin, the global agency that represents tens of thousands of independent music labels and hundreds of thousands of artists. The company is building a streaming service to compete with Spotify, Apple Music and Amazon Music.
• Australian betting giant Tabcorp is reported to have entered the bidding to run the National Lottery per The Telegraph. Other names understood to be interested include the incumbent, Camelot, alongside Sir Richard Branson; Richard Desmond, Dutch company Novamedia and other European lottery operators.
• The Public Investment Fund, controlled by Saudi Crown Prince Mohammed bin Salman, is rumoured to be in talks to acquire Newcastle United for slightly less than £350m.
FINANCE & ECONOMICS:
• The IHS Markit flash PMIs for the UK economy in January came in ahead of expectations at 52.4 for the economy as a whole with 52.9 for Services and 49.5 for Manufacturing. Markit says ‘the latest reading was the highest for almost one-and-a-half years and signalled a moderate expansion of business activity across the UK private sector economy.’
• Markit says ‘the survey data indicate an encouraging start to 2020 for the UK economy. Output grew at the fastest rate for sixteen months amid rising demand for both manufacturing and services, suggesting business is rebounding after declines seen late last year. Intensifying political and economic uncertainty ahead of the general election has started to ease, encouraging more spending and helping push business expectations of future growth to its highest since mid-2015.’
• The Flash PMI is ‘indicative of GDP rising at a quarterly rate of approximately 0.2% in January, representing a welcome revival of growth after the malaise seen in the closing months of 2019.’
• Sterling lower at $1.3058 and €1.184. Oil down at $59.31. UK 10yr gilt yield down 2bps at 0.57%. World markets broadly higher on Friday though US was down, Far East mixed in Monday trade.
• Brexit & politics:
o HS2 between a rock and a hard place – costs are spiralling but the government is committed to ‘levelling up’ the North.
o The UK will leave the EU on Friday.
o PM Boris Johnson says the UK will become a ‘global, trail-blazing country’ after Brexit.
o Divergence could hobble trade negotiations with the EU and talks with the US (which wants to get its deficit with the UK down) could be impacted by Huawei, extradition rows and other disagreements.
o US Treasury Secretary Steve Mnuchin has said he is ‘quite optimistic’ about securing a trade deal this year.
o Steve Barclay, whose Brexit department will cease to exist after Friday, has said the government is aiming for a ‘zero tariff, zero quota’ deal with the EU.
START THE DAY WITH A SONG:
Last Friday’s song was All Apologies by Nirvana. Today, who sang:
“Ooh, fall and free, fall and free,
Fall and free, fall and free
Fall and free”
RETAIL WITH NICK BUBB:
• Saturday’s Press and News: After all the Retail news in recent days, the Saturday papers were a bit thin in terms of Retail stories, with most focus on the news that the doomed gifts chain Hawkin’s Bazaar has gone into administration (again), although there were a lot of headlines about the rise in Business confidence undermining the case for the Bank of England cutting interest rates…Otherwise, the Daily Mail picked up the Evening Standard story about the row in North London about Ocado’s plans to build a distribution hub next to a primary skool in Islington, with the paper claiming that Ocado has had to perform a “U-turn” over a scheme for a diesel fuel dump, because of pollution fears. And there was an interestingly negative column by the FT’s stockmarket correspondent, Bryce Elder, about the recently floated Trainline.com, noting that its huge £2.5bn market cap ignores the risk of
• Sunday’s Press and News (1): There were two feature articles in the Sunday papers about the highly regarded boss of the Reiss fashion chain, Christos Angelides, reflecting the fact that Warburg Pincus, the private equity owner, wants to ramp up the PR about its stunning turnaround, ahead of a sale or float: the Sunday Times focused on the fact that a heart attack he suffered in 2013 when working as the Buying Director of Next made him look for a new challenge (“My brush with death made me a risk taker”), whilst the Sunday Telegraph focused on the fact that Christos nearly went to M&S rather than Reiss (“Reiss’s miracle worker Angelides is the one that got away for M&S”). The Sunday Telegraph also had a feature on the way in which banks would rather lend to Online retailers like The Hut than legacy High Street chains (“Buyer beware as banks give High Street shops the
• Sunday’s Press and News (2): The Business Leader column in the Observer looked at the fact that Simon Roberts and Ken Murphy, the new CEO’s of Sainsbury and Tesco respectively, both worked at Boots and asked “Why does a stint at Boots seem to make bosses such hot retail recruits?”. The Mail on Sunday made a big deal out of a story that House of Fraser is selling clothes with the logo of the controversial “President’s Club” and it also highlighted that the Woolworths brand name may be revived by an entrepreneur as an insurance business.The Mail on Sunday also flagged that private equity firms are circling the Steinhoff-owned Poundland discount chain.
• Today’s Press and News: The Daily Mail follows up on the Sunday press focus on the Reiss fashion chain and its boss Christos Angelides by flagging that the chain saw impressive 18% LFL sales growth at Christmas, whilst the Telegraph highlights that profits at the Space NK cosmetics chain were hit in y/e March by investment costs, but the business is trading well (with LFL sales 6% up over the last 9 months).
• News Flow This Week: There are very few retailers left to still report on Christmas trading (with AO.com still surprisingly quiet), but there is an ScS update on Wednesday, along with the Wickes Capital Markets Day in sunny Watford. And with the end of the month coming up very quickly now, we get the silly CBI Distributive Trades survey for “January” tomorrow morning and the widely followed monthly GFK Consumer Confidence survey first thing on Friday, whilst the MPC interest rate meeting on Thursday lunchtime will be worth looking out for.