Langton Capital – 2017-01-23 – Inflation, EasyHotel, Paddy Power, Brexit & other:
Inflation, EasyHotel, Paddy Power, Brexit & other:A DAY IN THE LIFE: So, a month after beginning to warn me that it was going to happen, my printer has finally run out of ink. And that, after c1,000 sheets that apparently should have come out blank, is only because I was daft enough to press ‘print’ on an attachment a colleague had sent me that included page after page of ink-heavy photographs. Which leads me to believe that there’s some sort of conspiracy going on out there to promote ink usage, specifically key-brand products at £100 or more per cartridge when you can quite easily make the stuff last longer (by ignoring warnings) and then buy replacement cartridges that have been ‘reconditioned’ – don’t ask too many questions – at a third of the price. And, to add to the above, I don’t know why I’m being furtive about this because when did I ever say I’d spend a lifetime buying Dell or Epson or HP ink just because I’d bought the hardware with them? On to the news: PUB, RESTAURANT & DRINKS PRODUCERS: • EY Item Club says drop in retail spending in December was greater than it had expected. It says ‘given the strength of the retail sector in the first two months of Q4, some easing in volume growth was to be expected in December. But a 1.9% drop in sales volumes was well in excess of the consensus expectation of a 0.1% decline and represented the biggest monthly fall since May 2011. All of the main retail sectors saw a monthly drop in sales volumes, with particularly sizeable drops in sales of clothing, footwear and household goods.’ • Sunday Times says columnist Luke Johnson right to highlight hotel, coffee & pub company Whitbread’s lack of main board hotel, coffee & pub experience. However, it rates the shares a buy ahead of Thursday trading update. • Landlords of hundreds of pubs have sent a letter to the government’s pub watchdog warning they may lose business to rivals if Heineken’s bid for Punch goes through. The protest has been organised by the Punch Tenant Network, which claims to represent thousands of publicans who have purchasing agreements with the pub company. • Advisory fees totalling more than £30m will be generated by the proposed £1.8bn takeover of Punch Taverns. Joint bidders Heineken and Patron expect to incur up to £21m of fees and expenses, with Patron spending £4.25m for financial and corporate broking advice from Rothschild and Heineken paying £5m to Nomura. Punch will incur advisory fees of up to £5.2m with Goldman Sachs, while legal advice will cost it a further £2.6m. Its total bill is estimated to be between £9m and £10m. • The BBPA believes Tower Hamlets Council’s decision to introduce a Late Night Levy will hurt pubs and the wider night time economy of the area. BBPA Chief Executive Brigid Simmonds commented: ‘Local pubs are unfairly burdened by the Levy, which is effectively a direct tax, even though they are often heavily engaged with several local partnership initiatives that provide effective local solutions to local problems. In 2016 we saw Cheltenham Council announce that it will end its Levy in favour of a BID. It is the first Council to do so and shows that the Council understands the need to work in close partnership with local businesses rather than to impose a punitive tax. We hope that other councils will take note of Cheltenham’s more positive approach.’ • Thwaites is to move to a new home in 2018 after full planning consent was granted for a new brewery, stables and head office. CEO Rick Bailey comments ‘this is great news. We’ve spent a long time developing the plans – we’re putting a substantial investment into the new site so it was important to get the details right.’ The group reports that the site, 5 miles from the group’s current head office in Blackburn, will bring the brewery, stables, head office and heritage centre into a single location. The group says ‘around £8m is being invested by Thwaites and work is expected to take over a year to complete, with the company hoping to move in spring of 2018.’ • New research from the Scottish Licensed Trade Association suggests that drink-driving legislation and rising business rates are the biggest challenges facing Scottish pubs. The survey of 600 pubs, sponsored by KPMG, revealed that over 60% of outlets were being hit by increased rateable values, while 71% were being affected by increased utility costs. Remote, countryside pubs underperformed the rest of the market over the festive period. • MCA’s Eating Out Panel data has found that average spend rose at each day part in the last month of 2016, with price inflation playing a key role. Visit frequency levels fell at dinner, however, suggesting consumers are cutting back on the highest spend eating out occasions. • The 14-strong Brewhouse & Kitchen saw like-for-like sales rise by 14.6% in December and ten of its sites had a record sales week over the festive period. • Deliveroo has introduced a subscription service, Deliveroo Plus, aimed at frequent customers. The offer sees the delivery service waive its £2.50 per delivery fee in exchange for a subscription fee of either £8.99 per month or £89 per year and is rolling out in Manchester, Birmingham, Edinburgh, Glasgow, Brighton, and York. • Retail sales in December fell 1.9% month-on-month – the biggest monthly fall for more than four and a half years, per Office for National Statistics figures. Non-food stores witnessed the heaviest sales in what has been labelled a ‘disastrous December’ by some analysts. • May Capital is supporting the Heineken/Patron bid to acquire Punch Taverns and will help to operate the portfolio of pubs should the bid go through. The group will operate ‘particularly with regards to strategy, corporate development / finance and the disposal of non-core assets’. • Moody’s also says La Quinta’s report that it is to separate its businesses into two standalone publicly traded companies is also credit positive. INFLATIONWATCH: • Straws in the wind. There are bigger brains than ours out there trying to aggregate what’s happening to prices but here’s a few observations. • FT reports ‘soya beans and soya meal extended their gains this week, as heavy rain in Argentina’s key growing areas deepened fears over a disruption to production.’ It comments Argentina is the world’s largest exporter of soya bean meal, an important livestock feed ingredient.’ • Sainsbury’s prices continue to edge up. Timothy Taylor’s Landlord bitter has moved from 180p per bottle to 185p. Greene King’s Golden Hen has moved from 160p (on offer) to 180p and now 185p. • Sainsbury’s standard printer paper 250p to 300p. Four bread cakes from 55p to 60p, croissants from 100p to 110p. • Sainsbury realises olive oil costs more than brine, puts price of tuna in olive oil up from 190p to 200p (brine soaked fish no change) • Sainsbury very quiet as consumers watch their wallets. Pet food prices edging up, dog-diet just around the corner. • Sunday Times reports Nescafe +14%, Nestle’s water +22%. Walkers +10%, Birds Eye +12%. Puts Marmitegate in perspective. Apple tablets etc. +20% plus, apps up from 79p to 99p. • Sainsbury quoted saying ‘the cost of individual products is determined by a number of factors and prices can fluctuate, both up and down. We remain committed to providing our customers with great quality food and value.’ Well yes, but which prices exactly are going down? • Pointy-heads now looking for inflation c2% in H1 and c4% in Dec. This will likely be wrong. Either it will overshoot (likely) or miraculously undershoot (unlikely) estimates. Sterling movements could be key. Here estimates for the year end vary between about 103c per US$ and 135c – and that’s a wide range. • It never rains but it pours. Adverse weather in Spain & S America is also impacting prices. • Food procurement company PSL reports lettuce is on the up. It says it has had confirmation that Iceberg are going to be costing £1.75 per head to guarantee any form of supply (these have been airfreighted in from the US). • Petrol price rises are in the pipeline. The price of oil (in Sterling) has more than doubled from its low points. • PSL says root vegetables remain cheap. • PSL says ‘the fruit and vegetable market is now reporting significant challenges, particularly for anything coming from Spain.’ This is due both to currency movements and to rain. • PSL says Waitrose has been carrying in-store notices apologising for the lack of spinach. It says growers are warning the vegetable was “like gold dust” in the UK. • PSL reports poor weather as behind the fact that Tesco is listing some tomatoes & peppers as “currently not available”. • EY Item Club on inflation & December retail sales: ‘December’s data delivered some unpleasant omens for this year. Annual shop price inflation accelerated from 0.1% in November to 0.9%, the fastest since the end of 2013 and contrasting with a 3.2% fall in December 2015. So, the squeeze on households’ real incomes is gradually tightening, implying a tough 2017 for retailers.’ WHERE WILL CONSUMERS CUT BACK? • Affordable treats will remain, well, affordable whilst big ticket sales (furniture, carpets) could come under pressure. • Consumers will be spending more on essentials. See above. • We have full employment. There isn’t slack to take up in order to prop up demand. • Consumers aren’t earning more and they can’t really borrow any more. Borrowing is up sharply, they may be maxed out per B of England. • Inflation will become embedded in the system if pay rises follow the above price rises. • This is likely to be resisted in which case the consumer will take a one-off hit of (Sterling depreciation x % of consumption spent on imports) • A 5% to 10% hit may be in order. • Small ticket spending, for a number of reasons, may hold up whilst spending on large ticket items (carpets, furniture etc.) may be postponed. • A pizza missed on a Friday evening can never be replaced. And it feels depressing. Changing one’s car every five rather than four years is manageable. Replacing the downstairs loo and sink may be pushed out a couple of years. • Overall, therefore, small ticket leisure spending may hold up. Any signs of job losses on the horizon, however, would be a different story. LEISURE TRAVEL & HOTELS: • EasyHotel has said that ‘trading for the year ending 30 September 2017 is in line with the Board’s expectations in both its owned and franchised hotels.’ • EZH reports ‘Group remains on track to deliver its development strategy announced in September 2016.’ • EZH: Has sold A3 space at 3-5 Northgate Street in Ipswich under a 999-year leasehold agreement for a consideration of £0.14 million. • EZH reports previously-announced development pipeline in on track, CEO Guy Parsons comments ‘the UK hotel market improved in November and December with Revpar growing in both months compared with 2015. Our owned hotels have continued to outperform the general market and their individual competitive set, as measured by STR Global. A similar market improvement has been experienced across much of continental Europe and our franchise hotels are performing in line with their respective markets.’ • EZH CEO comments ‘we remain on track to open eight new hotels, four owned and four franchised, in the current financial year and continue to make good progress in adding new projects to our development pipeline. Trading is in line with our expectations and we remain focused on implementation of our strategy as we continue to extend our footprint and establish easyHotel as the leading super budget hotel chain.’ • Claims management companies are fuelling ‘an explosion’ in gastric illness (GI) claims by UK holidaymakers in a cynical ‘money-making process’, per Travel Weekly. • The U.S. hotel industry reported mixed results in the three key performance metrics during the week of 8-14 January 2017, per STR. Occupancy decreased 0.9% to 56.6%, however, average daily rate (ADR) rose 2.8% to US$122.29, and revenue per available room (RevPAR) increased 1.9% to US$69.24. For the month of December, US hotels saw a 0.1% fall in occupancy to 52.9% but a 2.4% rise in average daily rate again helped spur 2.3% growth in revenue per available room to $62.98. • Meliá Hotels International intends to open 23 new hotels around the world this year, having opened 19 new sites in 2016. • Office Travel Money research shows that the pound is still strong against many currencies and half of European destinations are as good value as last year. Post Office Travel Money’s latest Holiday Money Report shows that despite the events of 2016 and the collapse of the pound against the dollar and euro, sterling is still stronger against most popular currencies than it was in 2012. • Spending by tourists to the UK in December increased by 23% as Asian and American Christmas shoppers took advantage of favourable exchange rates. Chinese shoppers, the group accounting for the largest portion of UK international spend, spent 46% more than December 2015 and visitors from the US – the second biggest spending nation – saw spend rise by 77%. • Vacation home start-up Stay Alfred, which manages around 350 vacation homes in upscale apartment buildings and offers hotel-style services, has gathered $15m in Series A funding. The group reported revenues of more than $25m in 2016. • Moody’s reports Hyatt’s acquisition of Miraval Group is Credit Positive • Uber is to pay $20m over claims it lied to drivers about how much they could earn and underestimated how much it would cost to finance their cars. OTHER LEISURE: • Paddy Power updates on trading, says Group revenue in FY2016 was up 18% year on year (+11% in constant currency) • Paddy Power says ‘since our Q3 trading update, the Group continued to see good sportsbook staking growth but results favoured customers.’ • Paddy Power says ‘we estimate that the impact on Group revenue from the customer friendly results, before any benefit from the re-cycling of winnings, was approximately £40m in the quarter. The impact on profitability of these results was partially offset by lower than expected marketing and staff costs.’
• Canadian based betting company Amaya has updated on guidance saying that it expects revenues to be ‘at the high end of the previous range and between $1,153 and $1,158 million, as compared to the previous range of between $1,137 and $1,157 million, and as compared to approximately $1,072 million in 2015’. The group says these higher estimates ‘reflect management’s view of current and future market conditions, including the assumptions used to determine the previously announced guidance.’ CEO Rafi Ashkenazi comments ‘we anticipate that 2016 will be a record year of revenues for Amaya. We also saw better than expected fourth quarter results from our casino offering, operational excellence program and a successful re-launch in Portugal, all while continuing to take an efficient and measured approach to marketing our product offerings.’ The CEO continues ‘we expect to continue this FINANCE & MARKETS: • PM Theresa is to unveil 10 ‘pillars’ of industrial policy. May be carved on a 10’ high tablet of stone a la Ed Miliband? • Chancellor Philip Hammond has acknowledged that Brexit uncertainty may cause firms to delay investment. • Chancellor Hammond says UK’s relationship with Trump administration will ‘prosper’. Mrs May to meet The Donald this Friday • Chancellor Hammond says that Tony Blair’s failure to control immigration in the early noughties is behind the Brexit vote • Nissan has said it will re-consider its investment in Britain once it knows the terms under which Brexit will be undertaken • Co-Chair of Leave means Leave John Longworth has warned that the German economy would pay a ‘high price’ if it’s leaders create problems for the Brexit process. • The FT has warned that, if the UK wishes to emulate the German model i.e. an economy driven by exports, we will need to overhaul our education system. We will need fewer History of Art graduates and more engineers. Or simply fewer graduates and more doers. • Lloyds has said that the number of people moving home last year fell for the first time in 5yrs. Not new news to Foxtons etc. • General acceptance that growth in 2016 exceeded estimates. Economists now looking for a ‘longer but shallower’ loss of output relative to where we would have been post Brexit upset. • World markets: UK down Friday, Europe up. US also up and Asia mostly higher in Monday trade • Brent around $55.40 per barrel. • Sterling up a little vs US dollar at 124.2c. Little changed vs Euro at 115.6c. • UK 10yr gilt yield up again at 1.43% (was 1.31% last Wednesday) on Brexit means Brexit fears. US 30yr money 3.05% (was 3.04%) TODAY IN A NUTSHELL – TWEET VERSION & YESTERDAY’S LATER COMMENTS: • EY Item Club says drop in retail spending in December was greater than it had expected. • FT reports ‘soya beans and soya meal extended their gains this week’ other green veg prices also rising • Sainsbury’s prices continue to edge up. Timothy Taylor’s Landlord bitter has moved from 180p per bottle to 185p. • Sainsbury’s standard printer paper 250p to 300p. Four bread cakes from 55p to 60p, croissants from 100p to 110p. • Sainsbury realises olive oil costs more than brine, puts price of tuna in olive oil up from 190p to 200p (brine soaked fish no change) • Sainsbury very quiet as consumers watch their wallets. Pet food prices edging up, dog-diet just around the corner. • Consumer squeeze. Affordable treats will remain, well, affordable whilst big ticket sales (furniture, carpets) could come under pressure. • EasyHotel says ‘trading for year ending 30 Sep 2017 is in line with Board’s expectations in both its owned & franchised hotels.’ • EZH reports ‘Group remains on track to deliver its development strategy announced in September 2016.’ • Paddy Power updates on trading, says Group revenue in FY2016 was up 18% year on year (+11% in constant currency) • PM Theresa is to unveil 10 ‘pillars’ of industrial policy. May be carved on a 10’ high tablet of stone a la Ed Miliband? • General acceptance that growth in 2016 exceeded estimates. Economists now looking for a ‘longer but shallower’ loss of output • Friday’s later tweets: Draghi & Germans clash on whether or not to tighten monetary policy across Eurozone. Bit of a north/south divide going on • ONS tells us retail sales dropped in Dec month on month by 1.9%. Meanwhile BRC / KPMG tells us trading was strong. Get your story straight • Gambian repatriations not helpful to the travel industry. But it’s a minor location & is industry on a hair-trigger during Tunisia inquest? • Online sales ‘down by a seasonally-adjusted 1.9% between Nov & Dec’. Yes, December. The month with Xmas in it. Thanks a lot, Black Friday • So are accountants to economists & politicians what photographers are to Picasso? They lack imagination but rarely talk rubbish @EY_ITEMClub • Fair cop, I’m an accountant. But retailers selling crazy cheap to tourists should look at replacement cost. It won’t be cheap to re-stock • Later tweets: Daily email free on website. Original & best. Now incl. tweets. News, views & analysis. Sign up & no strings. www.langtoncapital.co.uk RETAIL NEWS WITH NICK BUBB:
• Saturday Press (1): Apart from all the coverage of the extraordinary inauguration speech by President Trump…the main feature in the Saturday papers was the so-called slump in the Office of National Statistics Retail Sales figures for December, which prompted some lurid headlines, eg “Slump in retail sales fuels economic fears” in the Guardian and “Shoppers flee High Street as inflation starts to bite” in the Times, although the Telegraph played it all down…There was also some decent coverage of the Bonmarche update, eg in the Times and the Telegraph, although the Business editorial in the Times mocked the fact that Bonmarche has become “a branch of the Met Office”, given its obsession with the weather. The Telegraph also picked up on the boost that the embattled Philip Green and Mike Ashley received on Friday from their investment in the fast-recovering MySale Online business,
• Saturday Press (2): The FT had a big article about how Marks & Spencer’s attempt to turn round its struggling clothing business has been dented by the buying power of the likes of H&M and Primark and by a series of poor management decisions, noting that the renaissance of the Monoprix chain in France shows how M&S could have evolved differently. The Daily Mail highlighted that Ted Baker’s Global Retail Director Chris Browne has been buying shares, but the Telegraph flagged that the SuperGroup founder Julian Dunkerton has dumped c£6m of stock at 1530p. The lead story in the Telegraph market report was a bearish review of the supermarket sector in general and Tesco in particular by Exane. Finally, the Evening Standard on Friday had a couple of interesting London stories: Ikea is hoping to get planning permission for a “green” superstore in Greenwich and the property company
• Saturday Press (3): The Telegraph magazine published the annual “Debrett’s 500” List of “the most influential people in Britain” and the Retail list was: Matthew Barnes of Aldi UK; Mike Coupe of Sainsbury’s; Doug Gurr of Amazon UK; Christian Härtnagel of Lidl UK; Diana Hunter of Conviviality; Mahmud Kamani and Carol Kane of Boohoo.com; Dave Lewis of Tesco; Paula Nickolds of John Lewis; Nitin Passi of Missguided.com; Richard Pennycook of the Co-op; Dave Potts of Morrisons; Steve Rowe of Marks & Spencer; Angus Thirlwell of Hotel Chocolat; Clare Gilmartin of Trainline.com and Ewan Venters of Fortnum and Mason. As the humble Editor of “The Daily Retailer” helped Debrett’s to draw up the Retail list, we ought to point out that there are 1-2 names there that we don’t recognise…but we are pleased that the estimable Mahmud Kamani and Carol Kane of Boohoo.com made the cut, given the
• Sunday Press: The Sunday papers were a bit thin in terms of Retail stories, with the main story probably the Sunday Times revelation that activist investors have renewed their rebellion against French Connection, warning that the business is in danger of running out of cash by the summer and repeating calls for a boardroom shake-up. However, the Sunday Telegraph flagged that “a mystery hedge fund”, Delores Holdings, has taken a major short position in Tesco for the first time, after its solid recovery last year. The Sunday Telegraph also had a general list of all the “shortcuts” to finding “winners and losers” in 2017 and the Retail section flagged up the confusion about whether LFL sales should include Online sales. The Sunday Times noted the modest recovery in December trading at the struggling Jack Wills chain and the Sunday Express went big on some mundane research from the • News Flow This Week: The flow of news is much quieter this week, but there’s still plenty of interesting news to come: the Dixons Carphone update is out tomorrow (with an analysts meeting at 9am), the WH Smith update is on Wednesday ahead of their AGM and the Card Factory update is on Thursday. And, with the end of the month coming up quickly now, the CBI Distributive Trades survey for “January” is out on Thursday morning. • Dixons Carphone Ahead of tomorrow’s trading update from Dixons Carphone, the hard-working IR team has circulated the following consensus for LFL sales growth in the key 10 weeks ended 7th January: the UK +3.5%, the Nordics +1.0% and Southern Europe +1.0% (to give a group average of +2.5%). For the full year the underlying Group PBT consensus forecast is currently £487m. |
|
