A Day in the Life:

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So we won’t talk about Hull City falling to a match-changing goal in what felt like the 10th minute of extra time on Saturday and talk about something else instead, namely it feels like a long summer.

The weather has been half-decent and the August Bank Holiday is the latest that it can possibly be this year and the schools, in our neck of the woods at least, don’t seem to be going back until 7th Sept – or the 8th if you take account of the Teacher Training Day, whatever that is.

Meaning that the markets are quieter for longer this year and, on Friday, I had to send myself an email to prove that my systems were working correctly as I hadn’t had any contact with the outside world for an hour or two – and that included invitations to meet rather enthusiastic ladies of a certain type in Eastern Europe and West Africa.

And this week and next week will be disrupted by Tube strikes and the run up and run down to and from the Bank Holiday but get back to work at some point we certainly will and, for those who haven’t been following share price movements too closely, that could be something of a shock. On to the news:

The News:

Pub, Restaurant & Drinks Producer News:

• Punch sells 158 non-core pubs to NewRiver Retail for £53.5m, historic EBITDA multiple of 7.3x. Says it is ‘consistent with Punch’s strategy’

• Punch still aims to ‘sell the non-core estate at a rate of approximately 200 pubs per year’ + has just realised c£340k per pub

• Punch disposal ‘is above book value + significantly ahead of the average proceeds achieved for previous non-core disposals.’ The deal is unconditional and should complete on 11 September 2015. Punch says ‘the consideration will be satisfied in cash and proceeds will be used to reduce net debt.’ Giving a little detail, Punch adds ‘the disposal comprises 150 pubs from the non-core estate and 8 pubs from the core estate that no longer meet our criteria as a core pub.’ It reports ‘post transaction, the core estate will comprise c.2,900 pubs and the non-core estate will have c.550 pubs.’ CEO Duncan Garrood reports ‘this transaction is in line with our stated strategy of disposing pubs within the non-core estate, reducing the overall level of our debt, whilst focusing on our higher quality core pub estate.’

• M+C reports Urban Pubs + Bars, by Realpubs founders Nick Pring + Malcom Heap, is to launch new pizza concept Hackney. The group is to invest £200k in the former Palmerston Arms pub in Well Street.

• Lucozade has added Reduced Sugar Tropical Fusion to its portfolio of energy drinks as sugar continues to retrench. Lucozade reports ‘this is one of our best tested products that is sure to be a big hit with shoppers, whilst also marking a key step in our long-term commitment for calorie reduction. We know consumers are looking for lower sugar offerings.’

• High street petrol prices heading lower as UK’s 4 major supermarkets announce price cuts to around 109.7p per litre

• JD Wetherspoon remains best known + most visited pub brand in UK per M+C Allegra Foodservice report. Analyst says 23% of pub visitors had a lunch in JDW in Q2 this year v 25% in Q1.

• M+C reports Byron has pipeline of 13 secured sites

• Press reports Tesco’s Korea sale is both making progress but also being threatened by weakness in Korean currency. Tesco is reported to be set to reduce the number of potential buyers to a shortlist today

• Cote denies it keeps all of the 12.5% service charge added to customer bills but admits it retains some to make up to minimum wage. It says ‘we can confirm that, contrary to recent press reports, Cote distributes the service charge income to the restaurant level employees at which the service charge was collected. The individual restaurant manager allocates the service charge across all restaurant level employees, as we believe it is important to recognise those preparing the food or cleaning the kitchen, in addition to the front of house staff.’

• Observer keeps tipping row going saying Las Iguanas ‘forces waiters to pay to work,’ as they have to pay back 3% of sales generated. The paper says the payback rises to 5.5% at Las Iguana’s London restaurants. Talking of rival restaurant chain Turtle Bay, The Observer quotes Perry Phillips of the GMB union as saying ‘this policy is far worse than that of Pizza Express’. Perry adds ‘the fact that these restaurants are taking money off the waiting staff regardless of the tips they earn is unjust, unfair and downright disgraceful.’

• McDonald’s is to open 20 new restaurants in Russia.

Leisure Travel:

• Telegraph reports Uber plans to IPO in H1 2017 as bookings have quadrupled this year, should hit $10.8bn this year

• Ryannair ahs been told that it can’t put time limit on compensation

• 1,000 firms reported to have joined Airbnb as the booking portal gears up to service business travel

• Airbnb reported to be targeting China after seeing outbound travel grow 700% in Chines market over last year.

• TUI is not to fly to Tunisia until at least March next year. Thomas Cook has said it will not fly until at least February

Other Leisure:

• Bwin confirms that it is still in discussions with GVC re bid. Says will update ‘as + when appropriate’ + will update on trading Friday

• Sunday Times reports cinema operator is to acquire Dutch company JT Bioscopen for c€85 million this week

Finance & Markets:

• IMF says China slowdown is not a crisis but rather a ‘necessary’ adjustment. IMF still believes China will grow 6.8% this year

• Caixin/Markit survey suggests factory activity in China shrank at fastest rate in 6yrs in August. PMI of 47.1 v 47.8 in July

• World markets: UK sharply down Friday, Europe likewise. US weak in Friday afternoon trading + Far East down Monday

• UK’s FTSE100 reports biggest weekly loss of 2015 on China slowdown fears

• Brent oil down over weekend, now trading at $42.30 per barrel

• UK public finances in surplus of £1.3bn in July (a month of traditionally high tax receipts) per ONS. Is first July surplus since 2012. Chancellor George Osborne reports ‘the recovery is well established, tax revenues are up and we have more than halved the deficit.’ He goes on to say ‘but with debt over 80% of GDP, the job is not done.’

• CBI reports UK set to enjoy “decent quarterly GDP growth” of c2.6% over the current year as a whole up from earlier c2.5% estimates. It believes interest rates will rise in the UK in Q1 next year – though the current China issues referred to above may delay this.

• Greek political party Syriza said to be splitting with rebels walking out to set up new organisation in wake of debt cave in

Retail Roundup from Nick Bubb:

Saturday Press:
The stockmarket crash was the big topic in the Saturday papers, with the FT front page headline “Global stocks suffer rout as fears intensify over Chinese slowdown” and the Times headline “Blue chips paint Footsie red as fear grips markets” setting the tone. Amusingly, the Grauniad headline was “Concerns grow for merging markets”. Otherwise, Food Retailers provided most of the Retailing stories: the aforementioned Guardian highlighted that the supermarket petrol price war could take the price down to £1 a litre and it also flagged that Lidl is trialling a loyalty card scheme in Scotland, whilst the Times flagged that there is a queue of private equity buyers for Tesco’s South Korean business ahead of Monday’s bid deadline. The Telegraph stock market report noted that the N Brown share price fell sharply on the back of a downgrade
by Exane ahead of the interims and a bullish broker’s note from Liberum about the potential for Primark in the US provided an excuse for the Telegraph to run yet another fashion model photo. Finally, a business editorial in the Independent thundered that “parenthood can breed better bosses” and that after last week’s publicity Laura Wade-Gery of M&S should now be allowed to get on with it.

Sunday Press:
There was plenty more gloom about the stockmarket outlook in the Sunday papers, but the main Retail story was the Sunday Times lead that BHS has approached potential lenders, including hedge funds, about a £65m loan lifeline and that BHS has also appointed Michael Hitchcock, the former boss of the Beales chain, to help it separate its financial systems from that of Philip Green’s Arcadia. The Mail on Sunday suggested that a dip in the local currency could see Tesco make less money from the sale of its South Korean assets than the market expects and its Midas column tipped McColl’s as a Buy. The Sunday Express highlighted that the gadget chain Menkind has acquired its rival RED5 for an undisclosed sum. The Observer’s review of the week noted that Morrison’s ill-fated rush into convenience stores went wrong and it also had a big article about how local
independent convenience stores (like Eat 17 Spar in Hackney) are fighting back against the other supermarket convenience stores.

Grocer 33 Watch: In the widely followed Grocer “33” weekly supermarket pricing survey in the Grocer magazine on Friday afternoon, Asda won for the 3rd week in a row, with a roast-dinner themed basket of £76.88 nearly £3 cheaper than 2nd placed Tesco, over £8 cheaper than Morrisons, over £10 cheaper than Sainsbury and nearly £12 cheaper than Waitrose. There was better news for Sainsbury in the separate Grocer “Mystery Shopper” survey on Service and Availability service survey: the Sainsbury Woolton Liverpool store was the easy winner.

Nick Bubb – nicholas_bubb@hotmail.com

Friday Wrap:

This was produced for distribution Friday afternoon: So the trading day is grinding to a close. We’re another day older but are we any wiser? After a day of intensive head-scratching, pen flipping and gossip, we have been considering the following:

Oil prices & inflation:

• At $46 per barrel, the price of oil is back at early-2015 lows and these lows, in turn, were the lowest levels for nearly 7yrs

• Prices don’t have to drop much further before we’ll have to be going back a bit further to illustrate the drop. Brent was last below $40 in 2004 for example.

• This has an impact on consumers directly (cheaper petrol, other fuels move in tandem) and on companies via lower delivery and other costs.

• For some operators, for example the holiday companies, the impact is much more direct.

• There are no leisure companies that we’re aware of, that would benefit from higher oil prices – all are beneficiaries when the price of oil falls

o Tour operators lock in the price of their aviation fuel in the same way as they fix currencies etc. Hence any lower oil prices (whilst they impact the company’s customers immediately) will have a delayed impact on profitability.

• Re the consumer, lower oil prices will help to offset the costs implied by higher interest rates.

o Of course interest rates are zero sum. Somebody is better off even if the majority of us are not.

o The banks will somehow manage to put themselves in the former category, of course, and the government will benefit as it charges taxes on interest received and doesn’t allow relief (exc. Mortgages) on interest paid.

• But interest rate rises may be delayed (see below).

Interest rate rise fears versus China slowdown concerns:

• Just as the Fed and the Bank of England feel that they’ve done their job by pre-warning their various populaces that interest rates were going to go up, China slows down.

• And China is a big deal.

• Hence today we have a slight uptick in US jobless numbers and sluggish UK retail sales numbers leading observers to question whether interest rates will rise as quickly or as soon as previously supposed

• And further oil and commodity price declines will further dampen inflation and reduce the need for a rate rise

• This will be particularly keenly felt by non-US$ countries should the American currency begin to weaken

• Inflationary pressures in China may also abate

• Hence we’ve got the choice, the frying pan or the fire. Markets are understandably concerned. However, we would suggest 1) a bounce is due (even in a down market) and 2) a China slowdown (an unknown quantity) is probably more of a concern than is a series of interest rate rises (a somewhat delayed but previously regular occurrence).

The housing market & leisure demand:

• Housebuilding is booming & mortgage approvals are at 7yr highs – see earlier email.

• Housebuilding is a source of a large number of jobs.

• The industry puts money in would-be consumers’ pockets very quickly.

• But it can turn on and off like a tap.

• Property booms can decay quickly. They don’t leave anything (that’s not fair, they do leave houses & occasional other white elephants) but they don’t permanently change the ability of an economy to produce things in the way that a capex boom or clearing a forest or reclaiming a few thousand acres from the North Sea would.

• I mean come on, it’s not like we haven’t been here before.

Random information, hopefully not all of it useless (re most leisure operators etc.):

• Markets a little less bad than they might have been.

• So most people want to drink less, do they? Or do they think that they should say they do because, if the choice posed is whether you think you should be drinking more or less than you presently are, it may be an easy choice. However, whatever the faults implied by the question posed above, alcohol consumption is likely to remain on a downward trend for the foreseeable future.