Langton Capital – 2020-01-28 – PREMIUM – Rational voters, Just Eat, AG Barr, Saga, DP Eurasia etc.:
Rational voters, Just Eat, AG Barr, Saga, DP Eurasia etc.:
PREMIUM EMAIL – PLEASE DO NOT FORWARD:
A DAY IN THE LIFE:
I don’t think I’m alone but I note there’s been some major backsliding going on over Christmas and into January when it comes to eating between meals, consuming crisps, nuts, sweets, drinking too much beer and all the rest and the January detox for me hasn’t started yet despite the fact that the month has only three full days left to run.
So how about slipping it into February this year?
Or perhaps March or, if that doesn’t suit maybe I could just do the mother and father of all detoxes in January 2021?
Yes, that sounds like a good idea. I mean, what could go wrong? On to the news:
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BOOK REVIEW: THE MYTH OF THE RATIONAL VOTER – BRYAN CAPLAN – PUBLISHED 2007: Democracy may have replaced religion as an institution that cannot be criticised. But is that a reasonable absolute position? 28 Jan 2020:
• The only thing that can improve democracy is more democracy.
• Democracy is the worst form of government. Except for every other one.
• The people have spoken, etc. etc.
• The above are commonly held refrains but economist Bryan Caplan, who would appear not to be big on absolutes full stop, questions them.
Setting the scene:
• Caplan isn’t anti-democratic as such. But he thinks that it could occasionally work better.
• There are few absolutes out there. Even shareholder democracy is one share, one vote – not one shareholder, one vote.
• Democracy in the commercial world is applied through the prism of wealth. Chairman of JD Wetherspoon Tim Martin has many thousand times more votes than the average private shareholder because he is many times as wealthy.
• This isn’t applied when it comes to voting in political elections etc. Indeed it may be anathema to many people to even suggest it
• Caplan says we ‘don’t have to give up on democracy’ – but why have we ‘set the bar on expectations so low?’
Bad things happen to good people:
• The Birdy Song and Boaty McBoatface were ‘democratically elected’ suggesting that not everything that democracy produces is sensible.
• The counter-argument is the rather vacuous one of ‘elitism’ of course.
• But whilst elitism may be ‘bad’ the loathing of ‘experts’ isn’t necessarily a good idea because would you want a road digger to do your dentistry or a sewage worker to undertake your eye surgery?
• And whilst allegations of elitism etc. may stir the blood, there may not be much thought going into the resulting outrage because, if you ask a Boaty McBoatface voter whether he or she would put their name as Pendlebury Thriftbucket the Third on a job application, they may well not.
• Or at least think twice suggesting the above is a sort of ‘thrill falls to me, cost falls to you’ (or at least somebody else or only one millionth to me) situation
OK, but just how do these bad things happen?
• People like to feel good.
• They therefore like ‘feel good’ policies.
• Some of these are not ‘good’ (e.g. distrust of foreigners, a desire for a scapegoat, a fear of overseas competition etc.) but they are nonetheless ‘feel good’.
• Our genes, stubborn things, have something to do with that. It doesn’t do many animals much good to trust strangers – even of broadly their own kind. And we were animals of one form or another for 3.5bn years before we became ‘civilised’
• Politicians are incentivised to give people what they want.
These decisions at the micro level:
• The problem with asking people what they think is that they might tell you.
• Voters like to feel good. They may even know that a policy, e.g. Brexit, will make them worse off but:
o At a visceral level, they distrust foreigners
o They like scapegoats.
o They have a confirmatory bias & are prepared to accept the views of snake oil salesmen, wealthy plutocrats with an agenda etc. who tell them they will not be worse off
o And ‘what does one vote matter?’ When was the last time an election swung on one vote? What are the odds?
• With the above in mind, even rational voters may occasionally be rationally irrational.
Is the majority always right?
• The ‘wisdom of crowds’ (often the example of a crowd guessing the weight of a cow) does suggest that there may be something in this
• But it only works if ‘irrational’ answers are normally distributed. Half go too heavy, half go too light and the middle is dominated by the people who know something about the weight of cows
• But this doesn’t happen with many areas in democracy because the majority of biases (anti-foreign, anti-innovation (because of job losses), protectionism etc.) are in one direction.
• This means the outliers skew the answer in a predictable direction. Orators, billionaires with an agenda and career politicians know this
• Voters do what they do, and politicians often shout ‘follow me’ from the back of the crowd.
• Voters may get what they ask for rather than what ‘experts’ believe might be best for them.
• Even to suggest that this may be suboptimal raises the ire of true, unquestioning believers.
• Adam Smith said ‘the best antidote to the poison of enthusiasm & superstition’ is reason. This is often lacking. Particularly where patriotism or making something great again is concerned.
• When a consumer makes a mistake, he / she picks up the bill. This often isn’t the case with voting where one person’s vote may impact another person’s future
• People are ‘wilfully blind’ if the facts do not fit their prejudices.
• Nietzsche said ‘faith means not wanting to know what is true’. People will ‘greet questions with pious hostility’.
• Gustave le Bon said ‘whoever can supply [a crowd] with illusions is easily their master’.
• Important note. Criticising some aspects of democracy is not anti-democratic.
• There’s a lot more to this book but, as with many academic texts, there’s some repetition. If you’d like a part II, let me know, otherwise this will have to do for now.
PUBS & RESTAURANTS:
• Just Eat has updated on trading for its full year to end-December saying that ‘2019 concluded in line with the Board’s expectations.’ It says ‘we now expect to report underlying EBITDA of around £200 million, with group orders of 254 million and revenue of approximately £1.0 billion. UK order growth in 2019 was 8%. Order growth in our other markets during Q4 followed similar trends to those seen in Q3 2019, with good momentum in Australia, Italy and Switzerland and continued strong growth in Canada.’
• Just Eat also says that it has concluded a McDonald’s Partnership saying ‘we have agreed to partner nationwide with McDonald’s in the UK and Ireland which will see Just Eat becoming McDonald’s second exclusive delivery partner for McDelivery. The partnership will be implemented during 2020. McDelivery has proved extremely popular with customers in the UK and Ireland since its launch in 2017 and 2018 respectively.’
• Just Eat interim CEO Peter Duffy days ‘we are pleased to confirm underlying EBITDA towards the top end and revenue broadly in line with the guidance range we provided at the start of 2019, notwithstanding the significant developments during the year.’ Mr Duffy adds ‘we are delighted to announce that we have agreed to partner in the UK and Ireland with McDonald’s. This partnership, along with our recently announced relationship with Greggs, will require significant investment but will accelerate our growth ambitions and enhance our market position by offering our customers the widest choice available.’
• AG Barr has updated on full year trading saying that ‘adjusted profit before tax performance is expected to be at the top end of current market expectations, just ahead of £37m.’
• AG Barr CEO Roger White says ‘our focus remains the delivery of long-term value growth. We are taking action to reset our business and we enter the new financial year with confidence and a strong trading plan.’
• DP Eurasia has updated on full year trading to end-December saying that it has turned in ‘solid growth with high double digit growth in digital’. CEO Aslan Saranga says ‘we are pleased with our top line performance given the macroeconomic and competitive headwinds in our markets in 2019.’ Mr Saranga says ‘we are particularly pleased to have recorded double-digit like-for-like growth in Turkey despite a slow start to the year.’
• DP Eurasia says ‘it was a challenging year in Russia. Greater Moscow like-for-like performance was below plan due to new competitor store openings and increased aggregator activity. Issues with regional franchisees have been successfully resolved, but the store opening guidance has not been achieved.’
• The company concludes ‘digital continues to drive our business forward’ and says ‘the Board remains confident in its growth strategy and expects the full year Adjusted EBITDA for 2019 to be in line with expectations.’
• Deliveroo has promised £1m to develop healthier takeaway brands, after the delivery group reported that it had seen a rise in healthy orders of 181% in the last three years.
• EAT Ltd has reported numbers to 27 June to Companies House. EAT is part of the Villiers Topco group of companies, which was purchased by Pret A Manger after the end of the period under review.
• EAT reports that it had an ‘incredibly busy year’ that saw it move ‘from strength to strength.’ It turned in ‘17 consecutive months of like for like sales growth, achieving +3.3% for the year.’
• EAT reports that total revenue fell from £94.9m to £90.2m with pre-exceptional operating profit coming it at £1.2m (2018: loss £1.7m) and PBT after exceptional costs of £418k compared to a loss of £7.1m in 2018.
• Analyst Peter Backman has suggested that downward pressure on contract catering expenditure is becoming apparent. Mr Backman says ‘the decline is noticeable in the institutional sector which continues to suffer from reduced expenditure in school meals, hospitals etc.’
• Mr Backman reports ‘lunchtime feeding at work is under pressure from newer forms of working, such as home working and co working spaces. The expansion of online delivery via sites such as City Pantry and Seamless, which aggregate workplace orders for staff, internal events and meetings are putting pressure on B&I caterers.’
• Mr Backman suggests that pubs are performing more strongly. He says ‘pubs have continued to perform well for the last 18 months and increased demand has focused on alcohol sales. Food sales were up in the last quarter but have not risen as rapidly as wet sales. This continued strong performance suggests that the big shakeout in the pub sector, which has lasted for two decades, may be coming to an end.’
• Restaurants are not faring quite as well. Backman says ‘the torrid time the restaurant industry has suffered over the last few years has continued over the last few months driven by lack of consumer confidence, lack of clearly defined offers, falling standards of food and service, poor reputation caused by issues such as allergens and of course, rising costs for property, food and labour.’ Some of these factors could have become less of an issue post the decisive December general election.
• Sky reports Deliveroo has told its major investors that the continued (and now more detailed) CMA probe into the potential investment in the company by Amazon is ‘speculative and not supported by evidence’.
• Deliveroo is said to have said that Amazon, which pulled out of its own takeaway delivery business in 2018, had no plans to re-enter the sector. The size of Amazon’s minority stake is not disclosed but the two companies are said to dispute the CMA’s suggestion that Amazon would exert ‘material influence’ over Deliveroo by virtue of its shareholding. Deliveroo concludes ‘we are confident that we will persuade the CMA of the facts that this minority investment will add to competition, helping restaurants to grow their businesses, creating more work for riders, and increasing choice for customers.’
• Handmade Burger Co. had seen sales almost halve in the last four years resulting in the group entering into administration. Joint administrator David Griffiths said: ‘Sales at Handmade Burger Co. restaurants have almost halved during this period, which has proved to be unsustainable. It is disappointing that circumstances have meant that a sale of the business has not been possible in this case, but our focus now should be on those employees affected by this difficult news’.
• A new policy paper has been launched by UK food and drink supply chain organisations. Key recommendations include accommodating Rules of Origin, giving businesses time to adpat and encouraging job creation and value addition.
• Per NRN Journal in the US, some McDonald’s franchisees are concerned about the chain’s ability to compete with Chick-fil-A. Franchisees believe the brand is not moving fast enough to release a national premium chicken sandwich to compete with Chick-fil-A.
• The decline of the high street looks set to continue with British Land chief executive Chris Grigg saying ‘If we do the basic maths, are we going to see 20pc less of shops over time? That wouldn’t seem at all surprising to me’.
• Research from Wine Intelligence has found that 77m USA consumers drank wine at least once in the last month during 2019, down from 88m in 2015.
• D&D London has announced its plans to launch a rooftop restaurant at the top of Birmingham’s tallest office tower next year.
• Haribo has filed a lawsuit for trademark infringement against the Spanish start-up, Ositos & Co. The lawyers of Haribo have also asked the start-up to transfer ownership of its domain name, ositosconalcohol.com, to the Germany confectionary giant.
HOLIDAYS & LEISURE TRAVEL:
• Saga has updated on trading saying ‘we expect full year Underlying Profit Before Tax to be in line with our previous guidance.’ Cruise is performing well. CEO Euan Sutherland says ‘I’m delighted to have joined Saga and to be working with a strong executive team. Although Saga continues to face challenging markets in Insurance and Travel, we have a clear focus on improving performance and cost efficiencies within the Group, while strengthening our financial position and reducing debt.’
• Updated Foreign and Commonwealth Office travel guidance states ‘The Chinese authorities are focused on tackling the impact of the virus in different ways, many of which are likely to impact British nationals in all areas of China, not just Hubei province.’
• Pragma Consulting looks at the value of the tourism market in the UK (estimated at £129bn by Visit Britain) and says that there are four main customer groupings to target. It categorises these as ‘Buzzseekers’, mini breakers, explorers (older, focused on the outdoors & sight seeing) and ‘culture buffs’.
• Pragma says ‘attracting European tourists, (likely to be categorised as buzzseekers and culture buffs) will be a challenge in the coming years.’ A September 2019 survey suggested 45% of European travellers were concerned to one degree or another about Brexit. Pragma says ‘an additional 9% are very concerned.’
• Hotelplan has attributed its 4% fall in sales in the last year to an ‘extremely volatile environment’. Hotelplan reported revenue of CHF1.397 billion (€1.3billion) for the year.
• Royal Caribbean and MSC Cruises have both cancelled sailings from Shanghai amid concerns over the Chinese coronavirus outbreak.
• It is understood that Saga is planning to sell its escorted touring holidays brand Titan Travel, with Riviera Travel, Travelopia and PE firms such as ECI Partners and Graphite Capital thought to be interested.
• Marriott International has signed 815 agreements in 2019, representing more than 136,000 rooms and pushing its global pipeline to approximately 515,000 rooms. During 2019, the company added 516 properties with more than 78,000 rooms in 60 countries and territories
FINANCE & ECONOMICS:
• UK Finance reports 982,286 mortgages were approved last year, up 7.4% on 2019 and the highest in a decade.
• A decision whether to ban equipment made by Chinese technology giant Huawei from 5G networks is expected to be made by the government today. The US is lobbying the UK to exclude it on the grounds of national security.
• The Telegraph suggests that data this week will show vehicle production ‘plunging to near-decade lows’.
• Sterling little changed at $1.1847 and €1.3058. Oil unchanged at $59.20. UK 10yr gilt yield down 6bps at 0.51% as fears / hopes of a Thursday rate cut resurface. World markets broadly considerably lower on China coronavirus outbreak. Far East mixed overnight in Tuesday trade.
• Politics & Brexit:
o 5G decision today.
o HS2 row trundles on (unlike the trains).
o Fishing in the news as press suggests EU will demand access to British waters in exchange for City of London access to EU.
o National Audit Office says the publicity campaign to tell people to prepare for Brexit had not left people ‘significantly better prepared’. It said the message was ‘not clear’.
START THE DAY WITH A SONG:
Yesterday’s song was I Feel the Love by Donna Summer. Today, who sang:
Ooh, fall and free, fall and free,
Fall and free, fall and free
Fall and free
RETAIL WITH NICK BUBB:
• Today’s Press and News: Most of the papers flag up today’s announcement that Sainsbury has set out to be net carbon zero by 2040, notably the Guardian, whilst the Daily Mail has a feature on the way in which sustainability has become the latest front in the battle between the supermarkets. The Business headlines otherwise are all about the way in which global stockmarkets tumbled yesterday on fears about the Chinese “killer virus” and Lex column in the FT looks at the impact on the luxury retail sector, noting that Chinese shoppers are already spending less and thundering that it’s “time to cash in on luxury’s bull run”.
• News Flow This Week: There are very few retailers left to still report on Christmas trading (with AO.com one that has been oddly quiet), but there is an ScS Furniture update tomorrow, along with the Wickes DIY Capital Markets Day in sunny Watford. And with the end of the month coming up very quickly now, the silly CBI Distributive Trades survey for “January” at 11am this morning will get plenty of uncritical coverage, whilst the MPC interest rate meeting on Thursday lunchtime and the widely followed monthly GFK Consumer Confidence survey first thing on Friday will be worth looking out for.