Langton Capital – 2015-08-11 – Daily Wrap: Tips, milk, oil, interest rates & other:
Leisure Wrap & Other:
Note: The Daily Wrap goes out to clients at around this time daily and is copied to the wider list around 4pm. If you would like to become a client, establish a financial relationship & receive the email earlier, then please let us know.
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:
Tips debate is ongoing, Unite manages to ignore credit card charges, NIC etc.:
• Amex, Visa etc. don’t handle cash for free.
• Tips that end up being paid through the pay packet will also attract Employers’ NIC.
• Notwithstanding the above, Unite appears to have got the bit between its teeth.
• It reports on its website that ‘many’ kitchen & waiting staff will be on little more than £6 per hour but doesn’t mention that, inclusive of tips, they are likely to be earning £15 per hour plus.
• One sided reporting is a fact of life, however, and a number of restaurant operators may find themselves in the public eye for some time to come.
The price of milk (re food & drink retailers, food producers, Premier Foods etc.:)
• Milk is cheaper than water, official – [Chart in earlier email]
• Or rather some milk is cheaper than some water.
• But milk is a commodity. All involved, at least at the production end of the value chain, tend to be price-takers rather than price setters.
• Supermarkets may sell it for whatever price they choose. If they cut prices to £1 for four pints (as is the case now) then they have no particular right to expect dairy farmers to take less.
• But if, as Muller and others have suggested, there is too much milk being produced in the UK, then supermarkets can be expected to use this glut to their advantage.
• This is bad news for the marginal cow but, until herds are reduced in size, farmers’ efficiency will be used against them.
• With commodities it was ever thus but, in the meantime, cheap milk is helpful for consumers and for producers such as Premier Foods, for whom milk is a major input cost.
Interest rate rises (all operators, all consumers):
• Rates will rise both here and in the US ‘soon’.
• The Economist tells us China’s economy was half the size it is now when rates last rose in the UK.
• We’re reading more about rate rises now, in theory the actuality of a rise should not be a shock.
• But it will be. Perhaps less so for financial markets but the consumer will feel the difference.
• For many consumers Plan A is to assume rates will never rise and Plan B is not to think about it. Plan C is to go back to Plan A.
• Mortgage holders will be worse off, at least when their fix runs out but there are more savers than borrowers.
• Older people could be better off, annuity rates may rise, pension deficits may fall.
• Overall, a rate rise (the first of perhaps 15+) will not be helpful to consumers but there are some bright spots. Operators servicing the grey market may see a rate rise as something of a following wind and treasurers at companies in the sector that have pension deficits may find the move somewhat comforting.
• In the end, there is little alternative but to move on and to adapt to whatever changes are thrown up.
Random information, hopefully not all of it useless (re most leisure operators etc.):
• Oil back above $50. Has fallen a long, long way, however. Price now back toward lows seen earlier in the year. Billions of dollars being bet on future direction but, for the moment at least, this is still good news for tour operators, any energy-hungry companies and consumers who will continue to find it cheaper to fill up their cars.
• Wheat & corn prices blipping up. Still down over last few months, however. No discernible change to recent trends.
• Sterling down a touch v Euro & US dollar. Over last 12mths, however, Sterling is still +12% v Euro and down 8% re US dollar. Very little change in last 3mths.
• TUI down again yesterday ahead of Thursday update. A hit re Tunisia & Greece is expected, will be helpful to hear the scale of it & then hopefully move on.
• Greek debt issue settled. Yeah, right. Maybe so but many will only believe it when they see it and, even then, this is the third fix with each of the preceding two settlements being proposed as the last.
We’re so 21st Century, this morning’s Tweets (diff. font size denotes importance):
1. No news headlines re bashed up Pizza Express restaurants despite Unite protest last night. PE said to be keeping 8% of tips pool
2. The value of UK gin exports rose 37% to £394m from 2010 to 2014, helped by the opening of 73 new spirit distilleries.
3. Price gap between supermarket milk (cheap) + bottled water (expensive) is at widest point in >1yr reports The Grocer.
4. PPHE Hotel Group has flagged a 12% revenue rise and improving margins and profitability in its H1 results for H1
5. An AirBaltic flight due to fly from Oslo to Crete had to be grounded for five hours after both pilots failed an alcohol test.
6. SeaWorld, which operates at 11 sites across the US, has reported a drastic fall in Q2 profit from $37.4m to $5.8m
7. Intercontinental Hotels Group is reportedly evaluating bids for Canadian group Fairmont and Mövenpick in Switzerland.
8. Ladbrokes reports H1 numbers, revenues +1.3% to £585.4m, PBT down 43.9% at £24.7m and EPS down 44.2% at 2.4p.
a. Ladbroke reports H1 dividend cut to 1p from 4.3p last H1. Says ‘results in line’ + outlines new organic strategy
b. Ladbrokes says its £78.9m exceptional costs are ‘within previously announced range’ but reports statutory loss
9. Google is to reshape itself into a holding company called Alphabet which will have a structure more similar to Berkshire Hathaway
10. UK retail sales rose in July, driven by warm weather early in the month. BPC/KPMG say sales some 2.2% higher
11. B of England MPC member David Miles reports he sees a ‘reasonable case’ to vote for higher interest rates
a. Money Advice Trust warns home owners to prepare for rise in interest rates. Says there is a “short window” to organise finances
b. US Atlanta Fed chairman has told Atlanta Press Club that an interest rate rise is close. Economy is said to be clearing all major hurdles
12. World markets: UK up on bounce in commodity stocks. Europe higher, US also up and Asia higher in Tues trading
13. China has devalued its national currency, the yuan, by 1.9% to lowest rate against US$ in c3yrs
14. Greece said to have reached a bailout deal with its international creditors, according to a Greek finance ministry official.