A Day in the Life:

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

So I was pondering on the subtle difference yesterday between the words ‘funny’ and ‘laughable’.

Because the one implies praise and the other derision. Saying ‘your email is funny’ might raise a smile around here but calling anyone’s output ‘laughable’ probably would not and to call the product – or indeed Hull City’s football – a joke would have us reaching for our yellow cards.

And here’s another one for you. If ‘laughable’ is a perfectly logical and widely-understood word, then why aren’t ‘gaspable’, ‘shudderable’ or ‘smirkable’?

Anyway, it’s Friday. The end of a week in which JDW has issued a cautious trading update and then proceeded to buy back its shares at subsequently lower prices. Haven’t we been here before? On to the news:

The News:

Pub, Restaurant & Drinks Producer News:

• JD Wetherspoon Wednesday spent £3.4m buying back 553k of its shares. Just announced it spent another £404k Thursday

• Starbucks reports Q1 numbers, says strong holiday period drives +9% in US and +8% globally with traffic up by 4%.

• Starbuck Q1. Says consolidated net revenues up 12% in Q to $5.4bn. Operating income +15%, EPS of 46c up 15% on last year

• Starbucks sales +5% LfL in China/Pacific area. Global consolidated margin +60bps at 19.7% and 528 net new stores opened. Co says it ‘served over 23m more customer occasions from its global comp store base – 18 million in the U.S. – in Q1 over the prior year’. Chairman & CEO Howard Schultz reports ‘Starbucks record Q1 2016 financial and operating results, highlighted by comp sales increases of 9% in the U.S., 8% globally, another 4% increase in global traffic – and record performance from our Channel Development segment – underscore the accelerating strength and relevance of the Starbucks brand around the world.’ He continues ‘successful retail, CPG, digital, mobile, loyalty, card and investment strategies are combining to accelerate our revenue growth and drive significant margin expansion and EPS leverage.’ CFO Scott Maw adds
‘we’ve entered fiscal 2016 with another record-breaking quarter and a continuation of the accelerating momentum we saw in our business throughout 2015.’ He says ‘the investments we are making in our people and our business are driving record, industry leading operating and financial performance and consistently strong comp growth, and are both paying off today and setting us up for continued strong performance into the future.’

• Japan’s biggest brewer, Asahi, and Thai rival Thai Beverage are thought to be competing with at least four private equity firms to buy the Peroni, Grolsh and Meantime brands. The AB InBev beer brands are now in the next round of a €2.5bn auction, with Bain Capital, PAI Partners and EQT all also in the mix.

• Europe is the main market for Peroni and Grolsch, which are among the best-known brands owned by SAB in the region. The three beers have roughly €200m of EBITDA and could be valued at 11 to 12 times this amount, bankers said. Asahi is seen as the frontrunner in the bid battle for a deal that would allow the Japanese brewer to build a larger European presence. Japanese beverage groups have faced pressure to increase sales in their home market and have emerged as active buyers of foreign assets.

• McDonald’s franchisees in the US are optimistic on the coming financial quarter and year following a period of falling sales in 2015.

• Amazon is ramping up its investment plans across Europe this year amid stricter tax scrutiny, and is expected to employ several thousand more staff. The world’s largest online retailer is currently seeking to develop its digital media, grocery delivery, and device and cloud-management divisions. Sajid Javid, business secretary, welcomed the investment as evidence ‘that the UK is a great destination for innovative industries to invest and do business”. He said the jobs would “give added security to working people across the country — from app developers in Edinburgh to fashion photographers in London.’

• Rémy Cointreau has recovered from a poor first half, posting 3.2% organic growth in the three months to 31 December and taking its nine-month growth to 14.5%. Performance in the US and China improved and the group is confident of ending the year with operating profit growth.

• Treasury Wine Estates has said its H1 earnings will exceed expectations of A$120m and instead be in the range of A$140m-A$150m. Full year EBITS is now anticipated to be at the upper end of its guidance of A$270m-A$290m following a ‘pleasing’ performance from its Asia business and a strong Chinese New Year.

• Alcohol is the most stolen item from British supermarkets, c-stores and off-licenses, according to a survey of 100 shops by security company Monitored Alarm.

Leisure Travel:

• Visit Britain is pushing the UK as the ‘Home of Amazing Moments’ to would-be travellers in Brazil, France, Germany & the US

• STR reports US hotel industry grew REVPAR by 2.8% last week. Occupancy was down 0.7% but achieved rate rose by 3.5%

• Tougher US visa rules came into force yesterday. People who have visited a number of Middle East countries (Iran, Iraq, Sudan or Syria) since March 2011 will now have to apply for a visa in person. Visa-waiver rules will not apply to these travellers.

• The Egyptian minister for tourism says that improved airport security, including extra CCTV cameras and sniffer dogs, will ring tourists back to Sharm el Sheikh. Hisham Zaazou said: ‘Egyptian authorities are working constantly with international security delegations, and we have also appointed our own independent security expert advisors, Control Risks, to ensure Egypt has a world-class gold standard in airport security. By taking these proactive actions we remain confident that flight bans will be lifted in the near future which will allow tourists to enjoy Sharm el Sheikh as they did before.’

Finance & Markets:

• European Central Bank president Mario Draghi has said that Eurozone interest rates will stay low for an extended period and could fall lower than the current 0.05%. The overnight deposit rate was maintained at -0.3% in a bid to stimulate bank lending. Draghi told a news conference: ‘As we start the new year, downside risks have increased again amid heightened uncertainty about emerging market economies’ growth prospects, volatility in financial and commodity markets and geopolitical risks.’

• Mortgage lending in 2015 rose 8% to a seven-year high of £220.3bn but remained well below the pre-crisis peak of £356bn, according to the Council of Mortgage Lenders. THE CML added that lending has recovered faster than expected, thanks in part to growing wages, falling unemployment and cheap mortgage deals. The outlook for 2016 remains uncertain, added the body.

• World markets: UK and Europe up. US up later in the day & Far East higher in Friday trading

• Oil price up over the last 24hrs trading at around $29.50 per barrel. Several stories around but perhaps just simple rebound is closest to the mark

Retail Roundup from Nick Bubb:

Today’s Press and News: There is plenty of coverage of the Halfords and N Brown updates and the news that the discount shoe retailer Brantano has gone into administration, but after the lead story in the Evening Standard market report last night that Mike Ashley is planning to take Sports Direct private there is a firm denial in the Times, which gets a great quote from a friend of Mike himself: “He last sold stock at £8 a share: even he is not rude enough to then buy the company back at £4”.

Trade Press: In Drapers magazine the Editor’s column was headlined “New York puts tech on the radar for 2016” and was written in a sunny but very cold New York, attending the big Retail technology and trade show NRF. The main new story was the closure of 74 Blue Inc shops (we expected more about the departure of former George Clothing boss Fiona Lambert from Asda). Drapers also flagged that the Online fashion business Missguided has hired a new Retail Director, Andy Marsh, and is working on a plan to roll out UK stores; Primark has submitted a planning application to extend its UK headquarters in Reading in a bid to help it attract “the best staff out of London” and JD Sports has attributed its strong Christmas trading to “strong brand relationships” with its main suppliers, Nike and Adidas.

News Flow Next Week: Next week kicks off with a Kingfisher Capital Markets Day on Monday, but the big news day is Tuesday, with the Dixons Carphone Xmas trading/Strategy update, plus the Carpetright Q3, the Card Factory Xmas update and the Apple Q1 out in the US. And as the end of the month is approaching rapidly now, we get the CBI Distributive Trades survey for “January” on Wednesday and the monthly GFK Consumer Confidence Index is out first thing on Friday. Nick Bubb – nicholas_bubb@hotmail.com

Thursday 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:

JD Wetherspoon buying back shares:

• No surprise but JDW yesterday bought back 558k of its own shares at an average price of around 613p per share

• We mentioned in our first Flash Note on the subject yesterday ‘given that the group has always maintained that it can use its cash flow to either pay a dividend, buy back shares or open new pubs, if the third of these is coming down, it will be interesting to see what happens to the other two’.

• And now we know.

• JDW (and it admittedly may be wrong) believes that its own shares represent better value than does opening marginal pubs

• Though that is a little unfair as buying in freeholds for previously leased units does amount to a similar thing

• Overall, we believe that JDW is an excellent company and that its shares offer good value at these levels

Premier Foods:

• Premier Foods updated on Q3 (to end-Dec) sales this morning saying that Sweet Treats had had an excellent quarter but that branded grocery products (gravy, custard, sauce mixes, soups) had suffered from the warm weather in December.

• No surprises, rehabilitation remains on track, drop us a line if you would like more details and/or our take on developments.

UK (and global) interest rates:

• You can almost hear the air leaking out of the ‘interest-rates-are-going-up’ balloon.

• Mr Carney was going to put rates up when unemployment fell below 7%.

• It’s now 5.1% and his ‘forward guidance’ is in tatters.

• Or rather it isn’t because it’s been conveniently forgotten but it looks as though the Fed’s ‘four-rises-in-calendar-2016’ might be going to go the same way.

• Inflation is notable for its absence, real wage growth has slowed (a little) in the UK and a UK rate rise may not be consigned to calendar 2017.

Random information, hopefully not all of it useless:

• UK markets. Only two of yesterday’s FTSE100 constituents yesterday managed a rise in price.

• Official ‘bear market’ now in that the FTSE100 has lost more than 20% of its value from its recent highs (7123) to yesterday (5673).

• Global oddities. Even the dyed in the wool bears at Davos have to admit that the world economy is in a much better (or at least less bad) position than it was in in 2008 – yet Shell is yielding 10%. What’s going on?

• Sterling down again. Now lost c10% of its value vs both US$ and Euro over the last month or so.

• Commodities. Even what we had been calling El Nino commodities are now seeing their prices fall. Oh, inflation, where art thou?

• Coffee prices now down 31% over the last year, feeder cattle prices down by 25%.