Langton Capital – 2015-02-22 – Daily Wrap: Debt levels, the youth market, Greece & other:
Leisure Wrap & Other:
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. As always, contact us if you’d like further details:
Soho House and debt:
• See earlier email for fuller comment.
• Moody’s makes it clear that it believes Soho House is a robust business with sound cash flows
• But its actions suggest that it is saying, by its deeds rather than its words, that it is possible to load an uncomfortable amount of debt such that it becomes an issue for even the best of companies
• Certainly the above theory as to Moody’s thinking would fit the facts
• Soho House’s bankers appear to be requiring the group’s equity holders to put in more capital as a quid pro quo if they are to increase debt exposure
• We learned over the period of the credit crunch that it was very possible to over-gear.
• Hence the action of the banks seems fair enough, surely?
The youth market, where have all the drinkers gone?
• We have suggested for some time that operators need to be able to evolve their offers.
• And the fact that a study of 1,000 graduates by the NUS and YouthSight shows students are increasingly more likely to go to visit a coffee shop or a study group than go to the local student bar is a case in point
• Times are certainly changing (not that that is new in itself) and operators that make the opposite assumption may find that their market shrinks over time
• That’s not to say that pubs or bars or indeed nightclubs are redundant.
• But they may have to cater their offer to changing tastes. Perhaps offer even more food, entertainment, coffees, breakfasts, accommodation and the like
• Betting is still around 66:34 that we stay in the EU.
• This is, at this early stage in polling & betting, equivalent to a slam dunk.
• Hence planning for a Brexit may be a waste of effort.
• But, for the record, it would clearly impact the hotel and holiday companies across the leisure space more than it would our pubs and restaurants
• Sterling may weaken, import prices (for the brewers etc.) may rise and travel may become more problematic
• Whether it would be a good thing or a bad thing over time we’ll leave to the politicians to argue about.
• We have our own relatively strong views (that needn’t be aired at this stage) and don’t believe that we will be leaving any time soon in any case.
Interest rate moves:
• There are still some observers, presumably those who are attracted to symmetrical objects, who are saying that the next rate move could be downwards
• We don’t think that’s the case – but nor do we see rates rising in a hurry, either
• Over on the other side of the Atlantic, the betting on a March rate rise has diminished to only 2% vs 98% either banking on held rates or presumably of no opinion
Random information, hopefully not all of it useless:
• Markets in Europe taking their lead from Far East rather than the US, likely to go higher. Could break above recent down-trend. Will give the chartists something to talk about at least.
• Sterling down on Brexit fears. Down half a cent in an hour vs the US$ this morning and down around the same amount vs Euro.
• Oil price up from its weekend lows but still down a little from Friday.
• Gold price down a shade over the weekend but still up strongly over last month or so. Now up 2% over the last 12mths
• Most soft commodity prices still very weak. Some strength in metals, particularly precious metals
• Greece. More evidence from the nation’s own Press over the weekend that the problem hasn’t gone away. It may not even be sleeping. It might be just waking up again.
We’re so 21st Century, this morning’s Tweets (diff. font size denotes importance):
1. Soho House shareholders have been told that they must stump up £20m in equity if banks are to increase overdraft from £25m to £35m
a. Moody’s puts Soho House bonds on review. Accepts strong cash-flow but suggests that rapid expansion is eating cash.
2. Scientists at Washington State University have found that drinking wine just before bed helps people lose weight
3. Burger King has lost its bid to sell beer at its London Paddington and Victoria stations sites, following strong opposition from police.
4. A union has blasted restaurant chain Bill’s after claims tips meant for staff did not reach them
5. Study by NUS & YouthSight shows students more likely to go to visit a coffee shop or a study group than the local student bar.
6. The BBPA has responded to a group of multiple operators calling its beer duty campaign ‘fundamentally misguided’.
7. Home Retail Group has received a rival £1.4bn bid from South African retailer Steinhoff, worth more than Sainsbury’s £1.3bn offer.
8. Ladbrokes & Wm Hill will report FY numbers this week. Both will be adversely impacted by new taxes, levies. Other Leisure:
9. Playtech decides not to return cash to shareholders. Will use £800m war chest to kick off a new round of deals in the betting industry.
10. Jan surplus in public finances may still leave HMG short on its FY (5 April) targets. The ONS reports a Jan surplus +£1bn at £11.2bn
11. Greek paper Agora has said that EU lenders are working on a debt relief programme for the country if it can institute reforms by 2022