Langton Capital – 2015-08-14 – Daily Wrap: Punch, milk prices, hotel evolution & 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:
Punch, Matthew Clark & Conviviality Retail:
• It looks as though Conviviality has exclusivity and that a deal should be done before 5 September.
• At least it would appear that that’s the plan.
• For Punch, the amount of cash released is dependent upon working capital shifts to or from the associated company.
• But whatever cash is freed up will be useful as it can be used to help drive what is, after all, the company’s core business of running pubs
• Notes below are from last month – but little has changed
These comments from 9 July. Little that we know of has changed:
Matthew Clark, Conviviality & Punch Taverns (re Punch etc.):
• Matthew Clark has been considered a somewhat peripheral asset for some time
• This may be more pronounced as/when Punch moves more of its units to a managed model
• Conviviality is interested. It has said so, it has results on Monday, its shares are suspended at its own request (which presumably it would not wish to be the case for an extended period) and, though its surprise moment will now not be possible, it may have been intending a Monday RNS.
• So what is it worth?
• Well, in addition to running the risk of being wrong within a few hours, that’s not altogether easy to say
• The Telegraph suggested a ‘£200m deal’ (Punch owns half) around two months ago
• The business was ‘valued at £120m’ in 2007 when Punch & Constellation Brands (now Accolade Wines) became 50% partners
• Last year, it had £810m in revenues & generated £19m in EBITDA. The post-tax contribution to Punch’s P&L amounted to £6.2m
• A £200m disposal would therefore represent around £100m to Punch, a prior year PER of effectively 16x
• Any deal at around these levels, we would suggest, would be good news for Punch
• The group has low-hanging fruit re capex and, as it evolves its business model probably to include managed and franchised units, the cash could be effectively put to work elsewhere in the business.
The price of milk (re consumers, licensed leisure retailers, Premier Foods etc.):
• ASDA is to pay farmers more for its milk.
• It may still sell it at whatever price it chooses. Consumers may not have to pay more – this is good news for the leisure wallet
• This may be a PR exercise as, with a freely traded commodity, neither ASDA nor any individual farmer is in a position to much influence the price
• Wholesale users of the commodity, such as Premier Foods, should not find costs rising. Milk is currently selling at multi-year lows and this is unlikely to change over the medium term.
Evolution in the hotel market:
• See earlier email re London slowdown.
• Premier Inns & others have pointed to this for some time.
• Interestingly conferences are holding up well. True they are a lagging indicator. They can be scheduled a year or more in advance and, when it comes the day to attend, potentially nobody will be interested
• Long stay and apartments appear to be more of a genuine growth market.
• But re-tooling a hotel to offer apartments is not as simple as a change for pubs, for example to serve coffee, might be.
• Will take time, money etc. and it would be best to be ahead of the curve
Random information, hopefully not all of it useless (re most leisure operators etc.):
• Oil still firmly below $50 (Brent) and trading at 6.5yr lows (West Texas). Time to be buying forward, boys?
• Corn has lost all its recent gains. Just can’t get inflation to take off, it appears. Lumber back at lows. Have a look at Mondi.
• Good TUI bounce on relief that Tunisia can be quantified & that foreign leisure travel market is still alive & well.
• Anti-smoking campaign moves to outdoor areas, witch hunt finds its second wind. Alcohol may be next but, over time, pubs & restaurants will continue to feature other services, accommodation, food etc.
• So will Labour really elect Jeremy Corbyn? Hard to see. Anybody who ‘wants to go back to the 1970s’ must want their bumps examining. And Mr Corbyn, at 66 and 4yrs Tony Blair’s senior, actually lived through that decade, what’s his excuse?
We’re so 21st Century, this morning’s Tweets (diff. font size denotes importance):
1. Conviviality reports owners of Matthew Clark (Punch is 50%) have said they will not sell MC to a third party before 5 Sept.
2. Walkabout operator iNTERTAIN confirms it is to open 2 new venues sited in Lichfield + Solihull in the West Midlands
3. The Sun reports that Londoners drink the least amount of alcohol in Britain. Religion, social, health + other factors play a role
4. ASDA reports it is to increase price it pays its milk suppliers to “a level that will assist” farmers”
5. Report by Royal Society of Public Health suggests smoking ban should be extended to children’s playgrounds + other outside areas
6. Conviviality Retail will help rebrand 100 franchisees for free, providing them with internal branding, fascia and new tills.
7. Hertz reports sales down 5% in Q2. Strong dollar impacted numbers (down 13% outside USA), some falls in off-airport rental numbers.
8. The terrorist attack in Tunisia will cost TUI between €35m and €40m
9. HVS Q2 Hotel Bulletin shows REVPAR up by 4% across UK in quarter, still positive but lowest rate in 2yrs
a. HVS suggests Serviced Apartments remains one of the most attractive markets in the accommodation space
b. HVS points out that the conference market ‘proves bright spot in UK hotel slowdown’ saying conferences are holding up relatively well
c. HVS on hotels: ‘there are now signs of a slowdown in the sector prompted largely by the weakening of the Euro, a downturn in long haul visitors’
10. US retail sales rebounded in July on back of strong car market. Bounce has strengthened view that rates will rise shortly
11. Oil price: Brent trading at $49.20. West Texas Intermediate somewhat lower, actually scraping 6.5yr lows
12. Greek economy grew by 0.8% in Q2 and statisticians revised up their Q1 estimate from down 0.2% to flat