Langton Capital – 2015-10-06 – Daily Wrap: Greggs, commodity prices, house prices & 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:
• Red meat prices had been relatively firm whilst white meat (pork & chicken often move in tandem as foodstuff prices for the two animals tend to be linked) slipped in the period to around the beginning of this year
• Red meat prices then began to weaken. Recently white meat prices have been rising.
• Feeder cattle prices are now down by 19.2% over the last 12mths whilst pork prices, though they are down by 34.3% over the last 12mths, are actually a little firmer on a 6mth view.
• Elsewhere, wheat and corn prices are off their lows. Indeed such is the nature of the bounces (and the arbitrary 12mth time period) that wheat is up 3.5% on 12mths and corn prices are actually 17.6% up on very depressed prices a year ago. Soybean prices are still down by around 4.5% over the last year.
• The sugar price (along with the price of milk) has been terrible. Sugar is an ingredient in a number of processed foods. There has been a bounce, recently however and this has led Rabobank (they’re good at this stuff) to speculate that the ‘worst’ may be over.
• Of course if you’re a user of sugar, as most food processors and on-trade retailers are, then the decline in prices has been helpful. Nonetheless, Rabobank says ‘raw sugar prices reached their lowest levels since late 2008, continuing the downward trend in Q3 2015 [and this] heaps further pressure on a market already groaning under the weight of stocks accumulated over the last five years’. It says ‘prices rebounded during September, amid a growing consensus that the 2015/16 international crop year should see a swing to a global deficit (currently projected by Rabobank at 4.8 million tonnes), putting an end to an unprecedented five consecutive years of surplus and stock build-up.’ Rabobank’s Andy Duff says ‘the fundamentals of supply and demand seem to be telling us that, from a producer´s point of view, the worst of the current price cycle
• So buy your cheap sugar while you can.
Random information, hopefully not all of it useless (re most leisure operators etc.):
• Markets in buoyant mood, what was all the fuss about? BTW China markets shut at the moment, back on stream shortly. They will either have some catching up (on the upside) to do or may try to take global markets in the opposite direction. Betting is very much on the former.
• Oil price creeping a shade higher.
• Sterling up a little against the greenback as US rate rise expectations push out to March 2016.
• SAB update is pretty good. The group does well to remind us that it has a ‘unique global footprint’. Talks with ABInBev are ongoing.
• Greggs’ shares responding well to today’s upbeat statement. We said back at 1360p that, good though Greggs is, it’s just a chain of pie shops and the shares have settled back since. Nonetheless (and after today’s share price rise), the group’s shares are trading at a relatively stretched 21.4x this year’s earnings falling to around 20.2x next year’s c56p of earnings.
• Halifax has reported that house prices in the UK fell by 0.9% in the month of September. The market had been looking for a rise of around 0.1%. In the 3mths to end-September, they are up 2.0% and in the year to that date they are some 8.6% higher.
We’re so 21st Century, this morning’s Tweets (diff. font size denotes importance):
1. SAB Miller updates on Q2 (end-Sept) trading (had been expected 15 Oct) saying ‘growth accelerated in Q2’
a. SAB Q2: CEO Alan Clark reports ‘we continued to drive strong growth in Africa and Latin America’ adds net revenue in growth in all regions
b. SAB Q2: Currency moves pulled NPR down by 9% in both H1 and Q2. Constant currency growth was6% Q2, 4% in H1
c. SAB Q2: Group says ‘China, group NPR grew 5%’ whilst NPR was down 14% in Poland and flat in the UK
2. Greggs updates on Q3 trading. Sales +4.9% LfL, total sales some 5.0% higher. YTD LfL sales +5.6%, total +5.1%
a. Greggs Q3: Says 158 refits completed YTD with 20 conversions of larger bakery cafés, 65 new shops, 47 closures
b. Greggs Q3: Says its Balanced Choice and hot food options are ‘proving popular’ + it will continue its expansion with Euro Garages
c. Greggs Q3: Group has added a distribution centre ‘to support growth plans’ and concludes ‘we have traded well in the third quarter’.
d. Greggs Q3: Says costs controlled, sales ‘slightly ahead of our expectations’ with product initiatives gaining traction.
e. Greggs Q3: Re outlook ‘market conditions remain favourable with low cost pressures and a stronger consumer environment.’
3. M&C notes that National Living Wage is being passed at a time when restaurant operators are already increasing pay to retain key staff
4. Coaching Inn Group has more than doubled operating profit to £800,000 after pushing turnover in the year to March 2015 to >£10m
5. Hogs Back Brewery marks England exit from Rugby World Cup by renaming its 4.4% golden beer ‘England’s Glory’ to ‘Mourning Glory’
6. A survey by AB InBev of 1,000 women in the UK aged over 25 found that 44% till think of beer as a ‘man’s drink’.
7. Gordon Ramsay Group has posted a 4.2% rise in LfL sales in its UK restaurants for the year to 31 August
8. Research from CGA Strategy finds that more than half of all cocktail drinkers now have them in restaurants
9. Growth in the UK service sector slowed from 55.6 in August to 53.3 in September, its lowest rate in nearly two and a half years
10. Thomas Cook has announced further retail division restructuring + has put 48 jobs at risk of redundancy
11. Wizz Air: Load load factor up 3.3% YoY to 90.9% in September, while its 12 month rolling load factor was up 1.4% to 87.8%
12. IEA maintains its attack on Corbynomics saying that the 13 worst economic policy mistakes were clustered around the Corbynesque 1970s
What do you think?
Here we include questions for the trade. We’ll report back on trends, comments and observations. The latest big question is:
• Are the ‘Big Days’ still holding up? What about the weather – now that the sun’s shining, is it still the big deal that it was?