Langton Capital – 2015-08-10 – Daily Wrap: Corporate deals, TUI, living wage, clubs & 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:
Corporate activity on the up (re many if not most operators etc.):
• The ink has only just dried on the Greene King / Spirit deal.
• GVC and 888 are battling over Bwin.
• Kuoni recently disposed of the bulk of its tour operating business and last week sold its Indian business.
• Las Iguanas has just changed hands & the Press would have Yo Sushi, Moto, La Tasca and various others about to follow suit.
• It would appear that the IPO window may be open. Pret could list. The PE houses are taking the opportunity to exit investments that they had bought on a 3-4yr view and that they still own after 7yrs plus.
• This is not likely to end any time soon and the velocity of transactions could increase before it abates.
Tips, Living Wage etc.
• So Unite believes waiters should keep all of their tips & that employers should administer schemes for free.
• And what about breakages, thefts, till shorts etc.?
• Have cake & eat it rules as the union, understandably, would like to bank the Living Wage without any give back.
• It’ll be interesting to see whether there’s any picketing outside the local Pizza Express this evening and, if there is, whether any waiters (c£20 per hour, no barriers to entry etc.) will put their heads above the parapet to support such action.
TUI, Tunisia, Greece & the price of oil (re TUI, Thomas Cook etc.):
• Events in Tunisia and Greece have prompted some late switches in capacity, basically from the Eastern Med and North Africa to the Western Med and the Canaries.
• Whilst driven by tragedy in the case of Tunisia and by farce in the case of Greece, this has been good for on-the-ground operators in Spain and its islands.
• Unfortunately, the beneficiaries do not number amongst them the quoted UK tour operators.
• Because shifting capacity does not come free.
• Contracts may have been entered into. These need to be exited and new stock needs to be acquired and the prices in each case will move accordingly.
• And then there’s the back-of-house hassle involved in repatriations and the actually work involved in dealing with negotiations etc.
• This will cause both Thomas Cook and TUI to take something of a hit this year and we could not argue against those who suggest that ‘there’s always something going wrong’.
• That’s because, though the market for leisure travel is aspirational and should as such expand more rapidly than incomes, there are so many external variables that it’s always likely one of them will be pointing in the wrong direction at any one time.
• Hence you pays your money. We consider it an attractive industry with less potential for disastrous price wars going forward but we acknowledge that oil prices, currency movements, volcanoes, terrorism and other geopolitical issues will always have a role to play.
• Re Thomas Cook, the Fosun tie up looks attractive. Oil prices are sharply lower and we feel that the current share price represents good value.
Nightclubs still closing, evolution ongoing, change is the only constant:
• Operators cannot sit still and expect their business model to remain unchanged.
• Many ‘closed’ nightclubs will have reopened as nightclubs but some will be gone forever.
• But with bars staying open in some cases until 2am or 3am is this really a surprise?
• The blurring of the lines continues. The Daily Mash puts it well – here
Random information, hopefully not all of it useless (re most leisure operators etc.):
• Commodity prices are still flat on their backs. Metals are cheap, the sugar price has cratered (there may be health issues, at least in the West, as far as sugar is concerned) and carbs (wheat, soybean, corn) are cheap.
• On a similar theme, it is interesting to note that the prices of both corn and wheat, see below, tried to go better in the last quarter – partly on the back of weather considerations in the US. The prices promptly collapsed.
>Chart in earlier email.
• We don’t know what it means or what drives it but we’re interested in the price gap between West Texas Intermediate & Brent Crude. Oil isn’t always oil and there must be a reason for the differential but we note that, whilst it was around $11 per barrel earlier in the summer it’s now less than $6. Any suggestions as to what’s going on and/or how to trade the difference would be gratefully received.
• See Muller’s comments on cheap milk. This has continued implications for users such as Premier Foods.
We’re so 21st Century, this morning’s Tweets (diff. font size denotes importance):
1. Reuters suggests Pret to IPO in 2016. Says owner Bridgepoint ‘is looking to ramp up overseas profits before selling out’.
a. M+C reports Inflexion Private Equity is now front runner to buy 90-strong Yo Sushi in c£100m deal.
b. Sunday Times suggests a number of parties are considering bidding c£1bn for motorway services operator Moto
c. Kuoni has reported that it has sold its Indian travel business + tour operator in Hong Kong to Canadian group Fairfax.
d. Bwin has confirmed that it ‘is working closely with GVC + its advisers’ to formulate an improved bid for Bwin
2. Coke reported to be near to agreeing deal to buy minority stake in organic juice co Suja Life, valuing group at c$300m
3. Tips protest rolls on, protest led by union Unite to target Pizza Express stores this evening
4. Muller UK report suggests cheap milk here for some time, British farmers producing 40 pints of milk per annum more than demand
5. UK nightclubs closing at ‘alarming rate’ says ALMR. Says nearly half clubs gone in last 10yrs. Some reopen, others gone for good
6. Sunday Times reports Heron Tower, home to The Drift, Sushi Samba + other eateries may be sold to Chinese interests for c£750m
7. Sheffield University has suggested that UK’s suggested alcohol consumption limits are ‘unrealistic, largely ignored + irrelevant’
8. TUI is set to update on Q3 trading on Thursday. Group could outline exceptional costs of c£25m re Tunisia + Greece concerns
9. Last minute hotel searches in London are reported to have almost trebled during last week’s Tube strike
10. EU officials have suggested that Greece should be able to draft a deal on a 3rd bailout by Tuesday, possibly receive first cash 20 August
11. UK trade deficit almost doubled in June to £1.6bn from £885m in May per ONS numbers. Physical deficit £9.2bn, services surplus £7.6bn
12. US added 215k jobs in July per US Bureau of Labor Statistics. Analysts suggest such growth makes a Sept rate rise somewhat more likely