A Day in the Life:

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

Don’t you just hate it when people come up to you and tell you to cheer up because it may never happen?

Because 1) it might have happened already, 2) it might be about to happen, 3) you may, like me, be rather a cheerful type of chap with rather a glum outward appearance or 4) you may be perfectly happy being miserable.

At least you may be happy being miserable at times yet you’ve apparently offended some optimistic & morbidly happy person to the extent that they feel obliged to talk to you. Give me strength.

Anyway, the markets are taking a bit of a beating, credit spreads (see yesterday’s wrap repeated below) are widening and the credit markets may be tightening. But Hull City are still top of the Championship so it’s not all doom and gloom out there, is it? On to the news:

TUI – Q1 Results:

TUI has this morning reported Q1 numbers to end-December and our comments thereon are set out below:

Overall comment:

• TUI Q1: Has seen ‘good underlying performance in Q1 with 7.2 % improvement in underlying EBITA in spite of impact from geopolitical events’

• TUI sees ‘€10m of merger synergies in relation to corporate streamlining and Destination Services delivered in Q1’

• TUI reports the disposal process for Hotelbeds is on track and says that current trading is ‘in line with our expectations’

• It does, however, say that this is in-line performance is after ‘taking into account the geopolitical backdrop’

• TUI reiterates earnings guidance of at least 10 % growth in underlying EBITA in the current financial year

The numbers:

• TUI sales in Q1 €3.7bn (+5.4%), EBITA loss of €101.7m (3% lower) but EBITA loss at constant currencies €97.3m (7.2% lower)

• CEO Friedrich Joussen reports ‘we have delivered a good underlying performance in Q1 in spite of the backdrop of geopolitical-turbulence in some of our destinations’

• He goes on to say ‘northern Region and Riu have performed particularly well, and we remain pleased with demand and yield performance’

• The group is delivering synergies in its Cruise business

Current trends:

• TUI says ‘it is evident that there has been a significant shift in demand away from Turkey, with Summer 2016 bookings to that destination currently down around 40%.’

• TUI says it has been able to ‘remix capacity to alternative, profitable-destinations.’

• It says ‘in addition, our own hotels in destinations outside Turkey (such as Spain and the Canaries) are benefitting from the shift in demand.’

• TUI concludes ‘based on current trading, and the resilience of our integrated business model, we continue to expect to deliver-underlying EBITA growth of at least 10 % in 2015 / 16’.

Current trading:

• TUI says ‘current trading remains in line with our expectations’ and adds that winter is 82% sold with selling prices +3% & volumes flat

• Summer is 33% sold with volumes +1% and prices +2%.

Balance sheet & other:

• Group says the net debt position at end-Q1 was €1,876m, this being ‘driven by customary seasonal cash outflows within the tour operators’

• TUI adds that ‘we remain satisfied with our long-term debt funding and liquidity position.’

• The group is 90% hedged for currency & fuel for winter 2015/16 and summer 2016 combined

The News:

Pub, Restaurant & Drinks Producer News:

• Britvic announces Bob Ivell will step down from the Board on 29 Feb. Co CEO Gerald Corbett comments ‘Bob has been our Senior Independent Director since we floated over 10 years ago and has chaired our Remuneration Committee for the last 8 years. We will miss his wise counsel and wish him well in the future.’

• Barclaycard reports ‘shoppers splash out in the January sales but economic uncertainty hits consumer confidence’

• Barclaycard says consumer spending rose 3.8 per cent in January, continuing the strong run of growth in 2015’. It says this is partly because ‘merchants slashed prices during the traditional sale period’. It says ‘spending at department stores – typically big discounters at the start of the year – and furniture shops recorded the strongest increase on record, up 12.6 per cent and 11.3 per cent respectively’.

• Barclaycard says there has been a ‘marked drop recorded in consumer confidence levels since December’. It says those with confidence in their own personal finances fell from 34% in December to 24% in January. The January blues may be something to do with it but it would appear that there has been a moderation of expectations in recent weeks.

• Barclaycard says ‘January spending provided a much-needed boost to retail sales, though our data suggests that merchants took a hit as they grappled for market share. Consumers took advantage of the steep discounts to buy big-ticket items such as furniture  or white goods, and it’ll be interesting to see if February spending is much more muted as a result of this ‘stock-up’ mentality.’ It continues ‘it seems the downbeat news about the economy is taking a toll on consumer sentiment, however, with many shoppers reporting that they are less confident about the economy and, as a result, about their own financial prospects. Consumers will continue to place value for money front and centre when making purchasing decisions – they are willing to spend, but on their own terms.’

• Barclaycard reported specifically that spend in restaurants rose by 13.5% whilst in pubs, spending was some 12.5% higher.

• Barclaycard reports spending in travel agents up 3% y-o-y. Volume will be higher with unit prices less buoyant

• Adnams is to hold its beer prices in ‘a bid to support the pub industry’ reports the PMA. The company says ‘we fundamentally believe that pubs have a unique and important place in communities and their continued closure rate remains troubling’. CEO Andy Wood goes on to say ‘when allied to the significant competitive pressures they face, this is something that we cannot ignore. We held Adnams beer prices during the period 2009 to 2014 and, with such things as fuel prices at their lowest level for years, feel it is appropriate to do so once again.’

• Councils are to be given the power to remove Sunday trading restrictions, perhaps just in certain areas, from this Autumn.

• Shop vacancies have fallen to a 6yr low reports the Local Data Company. But it points to Dry January and a general fall in spending in January as a sign that the tough times may not have permanently absented themselves. The LDC says some 12.5% of the UK’s shops were vacant in January (down 40bps on December). Rather worryingly, it says ‘nearly 5% of Britain’s town and city centre shops have remained empty for more than three years. So while we have seen some positive signs at the start of 2016 for the ‘high street’, we cannot shy away from the vast numbers of empty shops that are never likely to be reoccupied again.’

• Diageo has completed its exit from the North American wine market via the sale of its Chalone Estate Vineyard in California

• ResDiary has suggested that rising operational costs are amongst the major concerns being expressed by UK restaurateurs. It found 36% of respondents felt that finding staff with required skills would be difficult whilst 23% worried that rising operational costs would prove extremely challenging. It says ‘this marks a significant 15% increase in those that felt this was a threat to their business in 2015.’

• Npower is doing its (little) bit for the consumer in that it is cutting its gas prices by 5.2% with effect from 28 March.

Leisure Travel:

• Safe destinations see boost to demand. Travel Weekly says bookings to Spain are running up by some 27% with Portugal +32%. It says ‘the peak January booking period has seen a record rise in bookings for summer holidays in what are seen as safe destinations in the western Mediterranean.’ It quotes an ABTA spokesman as saying ‘the increased global insecurity has led people to head for tried-and-trusted places, principally which they have been to before, mainly in the western Mediterranean.’

• LVMH Group is to open a luxury hotel in Mexico. The unit is expected to open in 2017.

• UK ferry bookings rose by 23% over last year in January this year per ferry comparison site Direct Ferries. The company says ‘it is great news that we have witnessed an increase in direct bookings of over 20% at the start of this year, despite general industry figures showing a very slight decrease in UK passenger numbers in 2015.’

• Gatwick carried a record number of passengers in January. CEO Stewart Wingate says recent growth supports its case for expansion

• Air France-KLM saw airline passenger numbers +2.4% y-o-y in January as the Fri 13 Nov terrorism impact faded

• The number of train tickets sold in 2015 rose 3.8% to 1.7bn per the Rail Delivery Group.

Other Leisure:

• Star Wars memorabilia has boosted Q4 sales at Hasbro. US group says its ‘boys segment’ saw sales up 35% in Q4.

Finance & Markets:

• World markets: All sharply lower in Monday trading, Far East down in Tuesday trade. Oils weak, ditto most other sectors

• Oil price down over last 24hrs. Trading at around $33 per barrel.

• Eurozone investor confidence slipped in February per latest data

• India’s economy grew by 7.5% in 2015. Growth slowed to 7.3% in Q4 but the country nonetheless recorded growth faster than that in China

Monday 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:

UK interest rates, wider economy:

• Bank of England Governor Carney in the Bank’s latest Inflation Report almost came out & said that there would be no rate rises this year

• The Bank is looking at corporate bond spreads. That is the premium over gilts that corporations must pay on their bonds.

• This narrows when times are good. It narrows too much when times are too good (risk ceases to be properly priced in) and it widens when credit conditions are tougher.

• And it’s beginning to widen.

• This is most noticeable with high yield (more risky) bonds, which is understandable. The chart below is taken from the Bank’s Inflation Report.

• Here yield spreads have widened by almost 2% in the US and by around 1.25% in the Eurozone and the UK over the last year

• As regards AA bonds, spreads have widened but by more like 40bps.

• This is important for a number of reasons.

• Not least, it suggests bond-buyers, who tend to put their money where their mouth is, believe that credit conditions are ‘worsening’.

• In addition, it suggests that annuity rates should rise

• This will help pension deficits etc.

Currency moves have Sterling adopt mid-Atlantic position:

• The real news in the currency markets is USD weakness

• However, as Sterling is frequently seen as neither fish nor fowl, it is moving somewhere in-between the USD and the Euro

• Hence over the last few days, the Pound has strengthened against the USD but it has weakened against the Euro

• It doesn’t take a lot of analysis to work out, therefore, that the Euro has been extremely strong against the USD – this will have an inflationary impact on many commodities as these are priced in USD yet will move in line with demand from many other, non-USD currencies

Random information, hopefully not all of it useless:

• Domino’s price weak Friday on delayed consideration of Langton’s comment that its shares were looking perhaps a shade pricey

• Fuller’s & Young’s share prices reverse opening differential. Young & Co price up a shade last week whilst FSTA was down by more than 4%

• Punch and Enterprise differential, meanwhile, continues to widen.

• Former M&S boss Stuart Rose saying that we could see further consolidation on the High Street. See Nick Bubb, earlier. Morrison’s & Ocado also said to be having a spat & Next is being assailed by short-seller(s).

• Oil price kinda stable around $34. But everything’s relative. It has been $120 and $27 in the last year and a half

• China pretty much closed all week for New Year

• Tech stocks weak in US. NASDAQ at 15mth lows.

• Commodities. Gold really rather strong. Sugar now weakening. Cocoa and coffee remain weak.

• Hog prices on the up. Cranswick, a great, Hull-based company, has benefited from recent falls. Rises – though the company does have a number of herds itself and is represented throughout the supply chain – could put some pressure on margins.