A Day in the Life:

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I remember there was once a family – no names, no pack-drill – that wanted to sneak a day off school for one of their kids in order to steal a march on a short break.

Boo, hiss you may say but have you ever tried to get to the coast on the A64 on a Saturday? And said family didn’t much want to pick up a school fine, get an ‘unauthorised absence’ caution, a slapped wrist or a patronising talking to or even go through the rigmarole of getting a doctor’s note so it suggested to the little girl (did I say girl?) that she just take the day off and say, after the long weekend, that she’d felt unwell the previous Friday.

Simple?

Well perhaps but have you ever tried to get a basically honest sub-ten year old to tell a fib? Because first they shift from foot to foot. Then they decline to look the other person in the eye, they go red, scratch their nose and move their head from side to side and then they get the words wrong all the while making you feel like that anti-Christ so we, or rather this family in question said ‘say nothing, we’ll give you a note’.

And this they did but the girl’s last words on the matter? They were ‘should I go cross-eyed?’

Innovative but not very helpful under the circumstances. Still it just goes to prove, you brings ‘em up right, you pays the price. On to the news:

The News:

Pub, Restaurant & Drinks Producer News:

• Enterprise is ‘on track’ for 30 managed pubs by 30 September according to its latest trading update. The number of managed units in its Bermondsey and Craft Union operations has grown from 16 on 12 May to 22. The pubco will open its first Managed Expert pub in September under the Eureka Inns banner with Rupert Clevely, and recently reported an ‘encouraging’ in line trading performance for the 44 weeks to 1 August.

• McDonald’s US plans to end the year with 59 fewer locations in home market than it started with, first shrinkage in 45yrs. The US, which accounts for around a third of global sales, has seen same-store sales fall dropped for seven consecutive quarters.

• A leading operator has told the M+C that nightclub numbers have halved due to poor operators rather than structural trends. Marks told the paper: ‘It should come as no surprise that nightclubs, like pubs, have closed in large numbers over the last 10 years. Just like the pub sector, there were too many poorly run and underinvested venues that weren’t delivering a great customer experience.’

• Michelin-starred restaurateur David Moore’s and publican Sean Martin’s US-style smokehouse concept One Sixty has opened its second site.

• Heineken has secured a marketing exclusion zone around rugby World Cup venues as part of its sponsorship deal.

• Manchester city centre hotels have achieved their best half year results on record, with an average occupancy rate of 78% from January to June. Greater Manchester also performed well as average occupancy reached 77%.

• The Cinnamon Club has closed until 10 September for a c.£1m refurb, propel writes.

• London steakhouse ‘M’ in the City is putting together a menu to coincide with game season which includes kangaroo, python and crocodile.

• M&S has purchased 119,535 ordinary shares at an average price of 548.33p for a total cost of just over £17m.

• A new brewery opens in the UK roughly every two days according to a report, with ministers hailing the nation’s ‘brewing powerhouse’. Pubs and brewing are responsible for sustaining nearly 900,000 jobs across the country

• Research by Mintel shows that the number of beers launched globally with an abv of 6.5% or more has rocketed by 280% between 2011 and 2014. The trend towards higher percentage beers was strongest in North America with 319%, although Europe (+307%) and Latin America (+260%) have witnessed similar levels.

• English winemakers are ‘cautiously optimistic for a great vintage’ following a frost-free spring and a summer heatwave. The harvest is around eight weeks away.

• London Underground workers will stage two more strikes on the 26 and 28 August due to continuing disputes over night tube plans

• UK food sales fell for the first time this year in July according to latest data from BRC-KPMG Retail sales monitor.

• Barclaycard reports consumer spending growth of 4.6% in July year-on-year. Weather impacted first half of month positively

• M+C reports Dark Star Brewery has agreed terms on a site in Haywards Heath, Sussex, for its pub company

• Shake shack reports LfL sales +12.9% in its Q2.

Leisure Travel:

• Heathrow passenger volumes surged in July with total numbers up 4.7% y-o-y to 7.29m. Long haul particularly strong

o Luton airport volumes +16% y-o-y in July, carries 1.3m passengers. Increase marks 16 consecutive months of growth

o Holiday Co Mark Warner has reported PBT down some 80% on back of ongoing uncertainty in Greece. Mail on Sunday reports group as saying ‘trading has now recovered and we are experiencing good demand again. While it’s not going to be a vintage summer, it shows good signs of finishing strongly. Trading for 2016 looks positive and we hope the political situation in Greece will remain stable and allow the travel industry to play a part in its recovery.

• Treasury minister David Gauke has suggested that airport shops should pass on lower prices when not charging VAT. Misses the point a little in that rents are extremely high. Also ex-VAT prices not available for everybody. Daily Mail says ‘it’s an absolute disgrace’ but it’s more complicated than that. Talk to BAA. Maybe it’s just that it’s August.

Cineworld Interims

• Where we are

o Cineworld produces its interim numbers on Thursday 13th August.

o Cineworld lost its CFO, Philip Bowcock, in June.  The shares suffered in the weeks that followed his departure, but have since recovered to their current all-time highs.

o There will have been some concern from investors in the company from before the group’s merger with Cinema City (the deal that bought the Greidingers their stake in the company and saw them join the board) that they are in a company that is now run by the group’s largest shareholders, where Philip Bowcock, who was one of the last impartial boardmembers, has now left.   It seems like these sellers of the stock have now dried up and the stock has some fresh air.

o The group acquired the c100 cinema strong Cinema City in 2014, which operates cinemas in Israel and Eastern Europe.

o The group appears to be in the process of installing Starbucks in relevant cinema’s, having previously described a trial run of the partnership as ‘lucrative’.

o 2015’s film schedule has been one of the most promising in a long time with several big sequals including The Avengers: Age of Ultron, and Jurassic World.  

o The films released so far look to have performed as well as they were expected to suggesting that cinemas should have performed well.  The average UK temperature looks to have been slightly below average so far this summer, which should be good for cinema attendance, however the heat wave in early July will likely have had a negative effect. 

o The first 19 weeks of the year saw group pro forma revenue up 10.7%, with the UK and Ireland revenue up 8.8%.  This period did not include Jurassic World, Minions, or Inside Out, however Thursday’s update will.

o When it last spoke the company indicated it planned to open a further 64 screens in the UK and 79 in Eastern Europe and Israel this year.

• Looking forward

o The film schedule for the remainder of the year looks good.  The final Hunger Games film comes out in November, and the new Star Wars film hits screens in December.

o While the film schedule also looks pretty good next year (Batman v Superman, Captain America, Independence Day 2…), the strength of the films this year will likely make for some tough comps for 2016.

o We’ll be looking for a more permanent CFO (currently Deputy Chief Executive Israel Greidinger has taken over CFO duties)

o Consumer health is currently good, with low inflation and real wage growth, which must be good for cinema attendance.

o Last year’s Autumn temperature in the UK was 1.4°C above average, so worse weather this year would mean better comps for cinema attendance.

• Valuation

o Consensus estimates suggest Cineworld is on a PE of c19.3x this year’s earnings, falling to 17.3x next year’s and on a yield of c 2.8%.

o There is some room to be wary of the group’s current valuation given the influence the Greidinger family have over the company.

o That said the group has tremendous growth potential in Eastern Europe, and the Greidingers are proven quality operators.  The film schedule for the next few years continues to look exciting and the consumer looks increasingly healthy. will.brumby@langtoncapital.co.uk

Finance & Markets:

o Homeowners are re-mortgaging in greater numbers reports BBC. Rate rise fears prompting 30% pick up in re-mortgaging numbers

• Figures from the Council of Mortgage Lenders (CML) show that 31,6000 households remortgaged in June – the highest level since September 2013. The number marks a 30% month on month jump as home-owners seed to lock in new deals ahead of any increases in interest rates.

• World markets: UK down yesterday on China fears, Europe down too. US markets lower later in day + Far East down in Weds trading

• The People’s Bank of China has again devalued the yuan, bringing the currency down 1.6% to 6.3306 against the dollar.

• Oil price firmly below $50 at $48.75 per barrel of Brent crude

Retail Roundup from Nick Bubb:

ScS: Unexpectedly, the sofa and carpets retailer ScS has come out with a pre-close update today, but this time, after its now infamous announcement on May 7th blaming poor sales on “pre-Election uncertainty”, the news is reassuring: trading recovered in the final quarter, so that LFL order intake for the 26 weeks to 25th July was up 1.4% on last year and the full-year results will be in line with revised market expectations. The other unexpected news is that the veteran FD, Ron Turnbull, has decided to step down, “to pursue new opportunities”, but the move seems friendly (in contrast to the M&S move…) and he will stay in place until a successor is found.

Marks & Spencer: The overnight news, as revealed by the FT website, that the well-regarded Head of Womenswear at M&S, Frances Russell, has been pushed out, is disappointing, but understandable in the context of office politics…If you were a sharp-elbowed and ambitious Steve Rowe, three weeks into the job of M&S General Merchandise supremo, after the sudden departure of John Dixon, then why not get rid of one your biggest rivals (who was evidently unhappy at being overlooked for your job) and install an apparent acolyte, Jo Jenkins (the Head of Lingerie and Beauty), as your No 2? 

New Look:
The breathless headline of yesterday’s Q1 New Look results (for the 13 weeks ended 27 June) was that they showed “strong trading across the business, during a quarter when the sale of New Look’s equity to Brait and a major debt refinancing were successfully completed”. And, given that this was a difficult trading period for UK Fashion retailers, it was indeed pretty good that, helped by strong 39% Online growth, UK sales were up by as much as 4.1% LFL (Marks & Spencer obviously dream of the day when LFL Clothing sales are up by 4.1%…). But the fact that overall group EBITDA was only up by 2% to £61m in the period implied either some pressure on operating costs (eg as the new store roll-out in China continued, with 39 stores now open and a further c40 signed up for the full year) or on gross margins. Anders Kristiansen, the New Look CEO, said:
“Whilst the consumer environment remains unpredictable, we continue to manage the business accordingly”. And, in case you were wondering, the hefty non-recurring exceptional transaction costs of £93m incurred in the period related mainly to the refinancing of the infamous “PIK” notes, which resulted in annualised interest savings of over £30m…

Nick Bubb – nicholas_bubb@hotmail.com

Tuesday 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:

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.

• 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.