A Day in the Life:

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Find previous emails at https://www.langtoncapital.co.uk/daily-notes/ 

I asked a former colleague the other day if it would be fair to call his pocket watch an affectation.

No he replied, he needed it to offset his bow tie before adding that he wanted to express his individuality suggesting that he’d read a book on it just like all those other people out there, John Snow, Robin Day and the like, who are unable to keep under control their desire to wear brightly coloured (or odd) socks, festive ties etc.

Mind you I can hardly talk. Not that I wear bizarre clothing, that wouldn’t look too good but I’m a black belt when it comes to hypocrisy, often the man who often says from the middle of a crowd how much he hates crowds or who can be heard advising others that they should travel off-peak whilst travelling at peak times himself.

Anyway, we’ve been running ‘new site problems’ and ‘rising rent’ stories for a few months now. Marston’s and M&B commented on the issue last week and today we have Azzurri adding sites whilst denying that it was a part of the problem so we were wondering, any horror stories out there?

Any ridiculous rents being demanded, lease premiums etc.? On to the news:

The News:

Pub, Restaurant & Drinks Producer News:

• Azzurri, owner of ASK, Zizzi + Coco di Mama reports that it invested a record amount in new openings in last year.

• Azzurri (ASK, Zizzi) reports sales of £250m in last financial year (+6.6%) with EBITDA +16.5% at £31.8m. Group opened 7 new restaurants in the year with CEO Steve Holmes saying ‘ASK was historically under-represented in city centres and shopping centres. We now have a real opportunity to grow.’ Both Marston’s and M&B last week said that new supply in the casual dining market was becoming something of an issue. Azzurri denies this saying ‘it is certainly more competitive. We have a healthy pipeline for all three brands. We might be ruled out of London for a while but that is not a huge cause for concern. We have got broad appeal.’

• MPs back call for 20% tax on sugary drinks. Quite how the small print would work on that one has yet to be determined

• Costa is trialling a new store concept with an improved food offer for the breakfast and lunch market called Costa Fresco after teaming up with salad bar chain Chop’d. Speaking to the M&C, a spokesperson for Costa said: ‘Costa Fresco is a new store concept from Costa, offering a range of handcrafted food and service developments for our customers at breakfast and lunchtimes.’

• Asda reduced the price of unleaded by 4p to 99.7p across its 273 UK filling stations in a three-day promotion. Although the move to join Morrison’s in setting a price at less than £1 coincides with Black Friday, Asda has said it will not participate in this year’s sales event due to ‘shopper fatigue’ on flash sales of big ticket items.

• Bill’s Restaurants joint managing director Roberto Moretti has been promoted to chief operating officer of the 71-strong group.

• A new report by Mintel suggests more than a quarter of wine buyers would spend more than £10 on a bottle of wine. Although the majority of wines are sold for £5-£10, 28% of wine drinkers are willing to spend more than £10 on a bottle of still wine and a further 7% will spend more than £20.

• The CBI’s latest Service Sector Survey shows that UK on-trade sector growth has continued to accelerate but 20% of businesses have seen falling profit. Costs across the service industry rose at the fastest rate in eight years due to the ‘strong expansion’ of headcount and training costs.

• Stock Spirits Group has cut its full-year profit forecast, blaming a drop in demand for flavoured vodka and devaluation of the Polish zloty. The vodka maker now expects FY EBITDA of between 50m-54m euros (£35.2m-£38m) vs forecasts given in August of 60m-68m euros. The company added in a statement: ‘During November, customer orders fell significantly short of expected commitments and… we currently do not have confidence that this shortfall will be made up in December.’

• Poland is Stock Spirits’ biggest market, accounting for more than half its total revenue and the group fears the zloty will continue to hurt sales in 2016. Shares in the company closed down 25 percent at 129.50p.

• Initial reports suggest that the majority of Black Friday activity may have taken place online. ‘There’s been plenty of anecdotal evidence around…to suggest that Black Friday, in terms of store-based retail, has been something of a damp squib in the UK this year.’ said Bryan Roberts of researcher Kantar Retail.

• Amazon says it had its biggest sales day in the UK on Black Friday, selling more than 7.4 million items. Online sales are expected to have passed £1bn on a single day for the first time. Argos confirmed it had experienced delays on its site after ‘extremely high levels of visits’, while John Lewis said its site had been down for a short time in the afternoon.

• Research from M&B finds Christmas dinner bookings in pubs and restaurants have increased some 202% since 2012. The number of meals sold in the first two weeks of the month has tripled from around 90,000 in in 2012 to 272,000 in 2014, with a key trend appearing to be more consumers going out for more than one Christmas event.

• Patty & Bun has lined up the former Stockpot site in Old Compton Street, Soho, for its fourth opening early next year. The burger operator recently opened its third site in London Fields.

• Street market company London Union has reduced its valuation from £35m to £26m and is offering 11.86% of its equity in exchange for £3.5m of funding on Seedrs. The company aims to reach 13 sites by 2019 reports Propel.

• AB InBev is ready to sell Peroni and Grolsch in an attempt to push its £177bn merger with SAB Miller past EU regulators.

• It’s Cyber Monday today. Deals abound, so we’re told.

Travel & Hotels:

• Virgin is to raise as much as £200m via a bond secured on its slots at Heathrow reports S Times.

• Jet2holidays has reported that sales have slowed since Paris attacks. Says ‘we have all seen bookings slow down since the atrocities in Paris; the market is slow at the moment.’

Other Leisure:

• Coral Group, currently set to merge with Ladbrokes, reports FY numbers to 26 Sept. Numbers exclude Gala Retail. Revenues +6%

• Coral group EBITDA +1% at £205.3m. Excluding World Cup impact, says EBITDA was +30%. Online EBITDA +99% ex World Cup + regulation

• Coral re current trading. Says ‘volumes have been strong across all divisions in the 8 week period to 22 November 2015.’ It says ‘Coral Retail like-for-like stakes were 2.3% ahead, Eurobet Retail sports stakes were 32.6% ahead (on a constant currency basis), Coral.co.uk sports stakes 57.6% ahead and Eurobet.it sports stakes 89.9% ahead (on a constant currency basis). Football results have, however, been poor in both the UK and Italy, adversely impacting Coral Retail and Eurobet Retail in particular. Despite these adverse results, the Online business continues to see impressive net revenue growth.’

• Sony reports PS4 console has sold over 30m units over last 2yrs, outselling PS2 and Microsoft Xbox One

Finance & Markets:

• World markets: UK mixed on Friday with Europe lower. US mostly up in thin trade but Far East down in Mon trade

• Oil price down over weekend. Trading at $44.75 per barrel of Brent crude on oversupply worries.

• UK economic growth confirmed at 0.5% in Q3 per ONS. Represents 11th consecutive quarter of growth

• Nationwide reports slowing in house price growth in Nov. Says prices up 0.1% in month of Oct and up 3.7% on year. Nationwide says ‘while this bodes well for a sustainable increase in housing market activity in the period ahead, much will depend on whether building activity can keep pace with increasing demand.’ Regionally prices in london rose most rapidly over the year (at +10.6%) whilst prices in Yorkshire rose by the least amount (+1.4%).

• German consumer confidence dipped in Oct according to GFK.

Leisure – The Week Ahead

Greene King has its interim numbers on Wednesday.  M&B and Marston’s have both already updated on their full years, and current trading at the two appears to have been mixed, with M&B seeing a 1.6% decline in the first 8 weeks of the year, but Marston’s hinting that current trading was ‘up, not down.’   M&B is focussing on improving LfLs and Greene King still has Spirit to integrate into its estate leaving the new build market to Marston’s for the time being.

Merlin Entertainment updates on Q4 trading on Tuesday.   The group has recently announced a JV for operations in China, and the shares have recovered a large chunk of what was lost following the Alton Towers crash fallout, rising some 10% from recent lows.

Elsewhere, Elegant Hotels has its final results on Thursday, while the UK Services and Composite PMIs come out also on Thursday and New Car Registration numbers come out on Friday. Will Brumby – will.brumby@langtoncapital.co.uk

Langton Food Retail Index – The Grocer’s Dozen

It was a weak seven days for Food Retail. Notable movers included Majestic Wine and Poundland, both falling in the week following their respective profit warnings, while shares in Conviviality Retail have been moving in the opposite direction. The Bargain Booze-owner has caught the eye in recent months with a spate of acquisitions.

Grocers

Ocado shares had the most significant move, up 3.14% having fallen by over 12% in the two weeks previously. At 366.5p, the online retailer is trading toward the floor of its 52-week range, but on a consensus PER of 281.9 falling to 187.4 the market is expecting rapid growth.

The group’s prospects are considerable, but in order to justify its valuation it must successfully expand into international markets, while continuing to remain at the forefront of warehousing, infrastructure and logistics. To this end, Ocado CTO Paul Clark et al. have pointed to considerable investment in robotics and AI, which is being fed ‘huge amounts of [consumer] data’.

Ocado also anticipates the smart grocery pipe – the idea that smart home appliances and the internet of things alongside other developments could almost completely automate the task of grocery shopping.

Specialty/Wholesale

Conviviality Retail continues on its bullish run, up 8.3% to 216.5p. Shares in the owner of Bargain Booze, Matthew Clarke and Wine Rack trade on a forecast PE of 13.5.

The company hailed a ‘transformational’ set of H1 results on 12 November, with unaudited revenues up 38% year-on-year from £183m to £252m following its acquisition of Matthew Clarke. The group also announced the purchase of London-based events service company Peppermint.

Wine Rack was highlighted as a top performer with like-for-like sales up 5.3%. It was only recently that Majestic Wine (-4.62%) was announcing a halving of H1 profits and a drastic reduction in store openings. Jack Brumby – jack.brumby@langtoncapital.co.uk

Retail Roundup from Nick Bubb:

Grocer Watch:
The widely followed Grocer “33” weekly supermarket pricing survey in Saturday’s magazine was won again by Asda, as their £52.35 basket was clearly the cheapest.  Tesco was back in 3rd place, on £56.90, but that was before a hefty £2.79 cash-back via their “Brand Guarantee Scheme”, and with that included they were 69p cheaper than Morrisons. Sainsbury was well off the pace (£59.05, before a “Brand Match” voucher of £2.98), as was Waitrose (£63.54). Next week the Grocer will examine how far “Pick Your Own Offers” makes a difference for Waitrose. The separate Grocer “Mystery Shopper” survey on Store Service and Availability was won yet again this week by Sainsbury, as their small 25,000 sq ft supermarket in Milton Keynes topped the rankings, with a modest score of 65 out of 100 in a low-scoring week. Interestingly, the
Morrisons and Waitrose stores (in Preston and Glasgow respectively) both scored 0 out 20 for stock availability…The front-page feature story in Grocer magazine was research showing that supermarket Xmas TV ads have convinced 12% of shoppers to switch where they will do their Xmas food shopping (with Sainsbury expected to be the beneficiary).

Saturday Press:
The big topic in the Saturday papers was the outcome of “Black Friday”, with the switch away from stores to Online shopping widely noted; the front page headline of the Daily Mail was “The Black Friday Flop” and inside it had lots of photos of empty-looking stores and shopping centres under the headline “It’s bleak Friday for empty shops”. The Daily Express had a similar article, wittily headlined “It’s slack Friday in the shops, but mayhem on the websites”, although its front page headline was the traditional gloomy story about “the weather”(“70mph Storms to Lash Britain”). The front page headline in the Telegraph took a slightly different line about High Street discounting: “Sales to last until Christmas”.  In other news, it was widely reported that Sports Direct has got
bogged down in a battle over its attempt to appoint a representative to the Board of Findel, whilst the Times had a big feature on the story that questions are being asked about Burberry and whether Christopher Bailey should be both the CEO and the Chief Creative designer. The Times noted in passing that SuperGroup has benefited from the founder Julian Dunkerton stepping back from doing two jobs and the main story in the FT stockmarket report was the Peel Hunt push on SuperGroup on Friday ,on the back of the launch of its new upmarket Idris Elba collection. The Times also had a feature interview with former HMV CEO Simon Fox, now plying his trade at Trinity Mirror. Finally, the unfortunate winner of this week’s “Dogberry Award” by the Daily Mail for the worst crimes against the English language was Beth Butterwick of Bonmarche, for saying that “…the responsive
website is working well”.

Sunday Press:
Inevitably, there was more in the Sunday papers about the disappointing outcome of “Black Friday” on the High Street, with the Mail on Sunday calling it “Red Friday” for physical stores and the Observer Business editorial making a similar point, although the Observer had a separate news article noting the big spending surge Online, despite the well-documented website delays experienced by Argos, John Lewis and Tesco shoppers. The Sunday Times Business editorial noted that any retailer claiming Black Friday success at this stage is talking “flannel” and that we will need to wait until the trading updates in mid-January to see how December was affected. The lead Business story in the Mail on Sunday was the row about the Chancellor’s abolition of Business Rates relief for small retailers, whilst the Sunday Express ran with the growing
realisation that the Chancellor’s controversial new Apprenticeship Levy will hit big employers like supermarkets. The Sunday Telegraph had a big feature interview with the new CEO of the Online gift retailer Not On The High Street, Simon Belsham, as well as a profile of the family owned Spar franchisee AF Blakemore, mirroring a Sunday Times article about the problems of the NISA convenience store group. The Sunday Times also flagged that Sports Direct is circling the Goals Soccer Centre operation and that the growth of Aldi/Lidl has pushed Morrisons down to 109th position in the FTSE 100 rankings. The Sunday Times also looked at how the City has turned on Poundland, after its recent warning of problems with the 99p Stores acquisition and soft trading.

French Connection: Trading updates from the embattled French Connection usually spell bad news, but this time the fashion chain has reported that things are going much better, with Retail LFL sales running flat over the 16 week period ended 21st November and gross margins up a chunky 150bps, thanks to a much improved full price sales mix. It has also announced that they will vacate the loss-making Regent Street store at the end of March 2016 and receive a compensation payment of £2.4m, due to the well-timed redevelopment of their building near Oxford Circus. Stephen Marks, the veteran Chairman and CEO, says: “While we still have the all-important Christmas period to come, we expect the results for the full year to be in line with market expectations”.

Poundland Director Watch: The management of Poundland have plenty of “skin in the game”, so they have suffered some pain from the recent collapse of over 20% in the share price, but there is always pressure to show even more confidence when sentiment is rocky, so it’s interesting that both the CEO Jim McCarthy and the CFO Nick Hateley stepped into the market on Friday to buy more shares at c212p: Jim McCarthy bought a chunky 331,751 shares to round his holding up to 10m shares (c3.7% of the issued share capital) and Nick Hateley bought 46,820 shares,  to take his holding up to c4.25m shares (c1.6% of the issued share capital). Follow the bulls? Nick Bubb – nicholas_bubb@hotmail.com

Friday Wrap:

This was produced for distribution yesterday 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:

Consumer confidence slips, every pound a prisoner:

• Latest GFK survey shows consumer confidence slipped in UK in November to the lowest level since the summer

• This fits in with 1) the belief that the post-election euphoria has been relatively short-lived and 2) that trading is likely to remain challenging as operators adapt to what may well be the ‘new normal’

• GFK says ‘confidence appears to be depressed by a combination of wider economic, political and social events’.

• Terrorism will not have helped but pub companies and the like were sounding notes of caution before outrages in Egypt and Paris.

• Mediocrity is not an option (reiterated by M&B and by Marston’s this week) and groups are going to have to work hard for their money

• This is what it is. In the way that a hard frost kills some frosts, a challenging (and who’s not to say realistic & semi-permanently more demanding) market will force the exit of some operators and will dissuade others from entering

• New entrants may be causing something of a problem in central London and in some other ‘hotspots’ but a more challenging environment may restrict returns and oblige PE houses and the like to re-examine their earnings assumptions and their models in general

• However, good operators will continue to prosper. Food and accommodation remain attractive. Hotspots may be best avoided. Value for money (which does not necessarily mean ‘cheap’) remains key.

Terrorism & leisure travel don’t mix well – official:

• Interesting to note that train bookings to Brussels were down 159%.

• That’s not a typo, it’s a negative number suggesting that there were no bookings and around 59% of a normal level of bookings’ cancellations.

• Hotels will be suffering in Brussels and occupancy in Paris may be down by as much as 50%

• And why wouldn’t it be because, on the margin, would-be travellers will be cancelling their trips

• As always, destination-specific disruption will impact operators with assets on the ground more directly than it will agents

• And agents (such as tour operators) which have mobile assets (planes) and a variety of destinations to which they can travel, should recover from such upheaval relatively quickly

SSP Group:

• With the above in mind, we’ve been a little bemused as to why SSP’s shares have not reacted more to incidents in Paris, Brussels, Egypt and elsewhere.

• Because it’s not just about the number of units in the locations in question but rather about that and the propensity to travel in general

• And this has presumably been accepted by shareholders selling out of TUI, TCG etc.

• So why not SSP?

• We can see that the group is a major player in Europe but that the market is fragmented in Asia and elsewhere.

• And we’re capable of joining the dots but, in the short term, we would have thought that the shares would have weakened a little at the very least.

Video game retailing:

• See earlier email for more detail.

• Game Digital sells video games (a growth area) from shops (not so much).

• We observe the group’s rating (c17x) and then consider how it may be subject to the same trends that sunk HMV, Blockbuster, Game Group itself first time around, book retailers and others and which have led to travel agents reducing the number of shops that they operate on the high street whenever the opportunity to do so has presented itself.

• Overall, we’re not convinced that the group will be immune from what look like unstoppable forces.

Marston’s offers solid value:

• Shares giving back a modest amount of ground at time of writing.

• Nonetheless, group now sells at c12x current year earnings & offers a yield of 4.6%.

• Added to which it is growing sales > market at the LfL level and is improving margins.

• Impact of NLW will be ‘modest’.

• Build costs a little higher but plenty in the pipeline and group avoiding overpriced hotspots.

Random information, hopefully not all of it useless:

• Sterling rallies a little & oil price down. Inflationary pressures lasted perhaps a day and a half.

• US half day today. Black Friday. Update on retail sales over the weekend and next week.

• Thomas Cook shares rally for second day on Thursday. Marston’s shares up on well-received FY numbers.

• Pat Val shares up in early Friday trading.

• UK shares down in early Friday trading but rallying by lunchtime. China sell-off in last hour’s trade having diminished impact.