Langton Capital – 2015-10-09 – SAB, Ruby Tuesday, London hotels, interest rates& other:
A Day in the Life:
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I know it’s an artistic shortcut but how come actors on the TV are always able to park right outside the place that they’re visiting.
There’s a murder on Piccadilly, a break-in on 5th avenue or a mugging on the Champs Elysees and there are the detectives, pulling up into a parking space not a spit from where they need to be.
But it’s not like that in real life, is it? You walk a quarter of a mile to the Tube, you put up with the sardine-like conditions for ten minutes and then you have another quarter mile walk at the other end or, should you be foolish enough to drive, you’ll probably be shunted from one full parking garage to the next and get to your destination some time tomorrow.
Although maybe I’m being a tad pedantic. I mean even the great Bill S managed to slip ‘exit, pursued by a bear’ into A Winter’s Tale but, if you’re going to have ‘walks to car, deep in conversation’ in every scene, then at least have the car in the next street. On to the news:
Pub, Restaurant & Drinks Producer News:
• AB InBev refutes SAB criticism, says bid is credible, that SAB’s board is split + that AB is offering tomorrow’s price today. It says it is ‘surprised that the Board of SABMiller…continues to say that this proposal “still very substantially undervalues SABMiller’. It denies that its bid lacks credibility. CEO Carlos Brito says ‘notwithstanding our good faith efforts, the Board of SABMiller has refused to meaningfully engage with us. Our proposal creates significant value for everybody. How long will it be before shareholders see a value of over GBP 42 in the absence of an offer from AB InBev? If shareholders agree that we should be in proper discussions, they should voice their views and should not allow the Board of SABMiller to frustrate this process and let this opportunity slip away.’
• Ruby Tuesday Q1. LfL sales +0.6%, adjusted EBITDA of $15.0m. Co reports total revenue of $279.5m down by 0.6% on store disposals. Group says ‘first quarter same-restaurant sales of 0.6% were negatively impacted by approximately 30 basis points due to the Labor Day holiday being reported in our first quarter last year versus being reported in our second quarter this year. Year-over-year guest counts were down 2.9% for the quarter.’ CEO JJ Buettgen reports ‘we were pleased with positive same-restaurant sales in the quarter, on top of a relatively strong sales performance in the first quarter of last year. Our same-restaurant sales gain reflected check growth partially offset by a decline in guest counts during the quarter.’ He goes on to say ‘year-over-year first quarter restaurant-level margins and profitability contracted primarily due to an increase in
• Ruby Tuesday outlook: Co reaffirms FY guidance of 12c to 17c, quite a wide range. LfLs should be 0% to 2% higher.
• Tesco CEO Dave Lewis buys 99,950 shares at 200.1p a day after saying the board had banned itself from dealing.
• Up to a third of vegetarians have admitted eating meat after or during a night out.
• Increasing competition in the dining out sector is pushing the price of certain dishes down in many pubs, restaurants and hotels. Horizons’ Menu Trends report also shows that operators are introducing a wider variety of side dishes, extra toppings and sauces to sell to consumers.
• The average cost of an adult, three-course mea in a pub was £18.74 this summer, compared with £19.19 last year. In a restaurant the figure was £21.55 vs £21.69 last year, while for hotels it was £27.09 vs £26.20.
• Local Data Company figures show that while the rate of shop vacancies is at its lowest point since 2010, the figure for leisure outlets is at a record high. The leisure vacancy rate increased from 8.13% in August to 8.16% in September.
• The ALMR has warned that apprenticeship levy proposals risk disrupting investment and could increase the burdens on businesses. ALMR Chief Executive Kate Nicholls said: ‘The Government’s proposed levy focuses on quantity, not quality and could undermine the Government’s own objectives if businesses end up paying out more than they can generate in apprenticeships. The proposed levy opts for a one size fits all approach that totally fails to consider businesses size, market, or trading style. The proposals make no reference to the potential size of the levy and which businesses will be caught by it. The Government has spoken of applying it a ‘reasonable level’ without indicating what that entails. Smaller companies may not be able to generate the large numbers of quality apprenticeships the Government is asking for.’
• The M&C reports that first round bids for Gaucho and Ed’s Easy Diner are due this week, with the former being valued at c.£100m.
• Jamie Oliver has announced his support for Brighton introduction of a voluntary 10p charge to soft drinks.
• According to the Napa Valley Vintners Association the quality of its 2015 vintage is likely to be high but quantities are lower than average.
• Stonegate’s Classic Inns estate has unveiled its ‘Autumnal’ menu of classic pub food and real ales.
• KKR-backed Indian coffee chain Cafe Coffee Day, which has 1,500 sites, is moving towards a c$176m IPO. The cafe market in India is growing at around 20% per year.
• CAMRA figures show that of the 1,234 pub closures from Dec 2014 to June 2015, 578 were in suburban areas.
Tesco – yesterday’s analysts’ meeting:
• Tesco believes it has ‘another six months of repositioning to go’ despite seeing operating profit tumble to £354m (2014 H1: £779m). The grocer remains busy and has a number of important issues to address going forward. It has to ensure the successful integration of a new management structure for its businesses across the Czech Republic, Hungary, Poland and Slovakia. Tesco management has identified potential synergies in buying, marketing and operations and will look to meaningfully increase the area’s £102m profit contribution.
• The group is also progressing with its strategy to shore up its balance sheet and protect its credit rating. Some £8.6bn of debt, another £9.1bn of discounted operating lease commitments and a £4.2bn pension deficit give Tesco. The Homeplus sale will strengthen the group’s balance sheet to the tune of £4.2bn, meaning that Tesco’s total indebtedness after the sale will stand at around £17.7bn.
• With respect to its pensions, the group’s IAS19 deficit rose from £3.9bn to £4.2bn. Tesco intends to move to a defined contribution scheme in November as it attempts to increase visibility of future cash requirements and create sustainable benefits. Jack Brumby – firstname.lastname@example.org
Holidays & Leisure Travel:
• Manchester Airports Group wants to see a ‘network of competing regional airports’ rather than a southeast Megahub. The group, which runs Manchester, East Midlands, Bournemouth and Stansted airports, said that boosting regional airports would provide an ‘important catalyst’ to the economy.
• London hoteliers have struggled to match the performance of last year and the pace of growth in 2015 has been mixed, according to PwC. The regions have continued to see very strong RevPAR growth, with growth coming from a mix of occupancy and ADR. Cities enjoying double digit RevPAR growth include Belfast, Bristol, Birmingham, Coventry, Liverpool and Nottingham.
• Ladbrokes announces it has signed a £1.35bn facility with bank syndicate to provide committed financing for its proposed merger with Coral’. CFO Ian Bull comments ‘I am pleased that our relationship banks have shown strong support in putting in place a significant size facility at similar pricing to our current facilities. We believe that this facility will provide sufficient liquidity to an enlarged Ladbrokes Coral group following the merger.’
• Formula One said to be close to changing hands for up to $8.5bn.
Finance & Markets:
• The Monetary Policy Committee has voted 8-1 to maintain Bank Rate at 0.5%. Twelve-month CPI was well below the 2% target rate inflation in August at 0%.
• UK house sales rose at the fastest pace for 16 months in September, the Royal Institution of Chartered Surveyors (Rics) has said. The group warned after the fifth month in a row of price increases that a shortage of properties could continue to push prices up.
• Data from the Federal Statistics Office shows German exports fell in August by their largest amount since 2009, while imports were also down. Seasonally-adjusted exports fell by 5.2% from July to €97.7bn (£71.8bn) and imports fell 3.1% to €78.2bn.
• Fed minutes show it believes US economy could have coped with an interest rate rise in Sept – but didn’t want to put it to test
• World markets: UK + Europe higher yesterday, US too. Far East up in Fri trading
• Oil price markedly higher again, trading at around $53.30 per barrel
Leisure – The Week Ahead
Marston’s updates on Q4 trading on Wednesday. M&B saw recent trading tricky in their latest trading update and investors will be looking for Marston’s to outperform. England’s exit from the Rugby World Cup is likely to impact sales at Marston’s tenanted division, but will have helped food led pubs.
Domino’s updates on its Q3 also on Wednesday. The group’s sales will likely have been helped by the World Cup and the colder than usual August weather, however once again England’s exit was likely unhelpful.
The CPI for September is released on Tuesday. Commodity prices remain low, however there has been some recovery in grain prices, and milk looks to have flattened off recently suggesting food prices may see some upward pressure this month. Last month saw the CPI at 0.0% for the year to August.
Unemployment data comes out on Wednesday. Last month saw the unemployment rate flat at 5.5%, with wage growth accelerating to 2.9%.
Will Brumby – email@example.com
Retail Roundup from Nick Bubb:
Today’s Press and News: the big focus is on yesterday’s news that Tesco Directors bought shares in the company the day after claiming that they were barred from doing so…whilst the stockmarket reports focus on the news of a second downgrade in Marks & Spencer, this time by Peel Hunt.
Trade Press (1):
Trade Press (2):
News Flow Next Week: Next week kicks off with the BRC-KPMG Retail Sales figures for September on Tuesday morning. Wednesday then brings the Vertu Motors interims and the N Brown interims. And a busy Thursday then sees the WH Smith final results, the Game Digital interims, the Booker interims and the Burberry Q2 update all vying for attention.
Nick Bubb – firstname.lastname@example.org
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:
SAB Miller & AB InBev:
• The £42.15 cash bid is contingent on agreement from Altria & BevCo, board recommendation & satisfactory conditions from regulators.
• And the time value of money comes into it too but, with the shares sitting at >13% discount to the cash bid, the shares look a reasonable investment.
• Of course the bid may fall over but, as various commentators have pointed out, the negotiations could take place above the board’s head (with Altria & BevCo) and the rest could just be noise.
• Indeed management, for form’s sake, may be able to squeeze a few more pennies but, if Altria & Bevco take the (lower-priced) share alternative with a minimum 5yr lock-in, they are clearly in this for the long term and, if the share alternative was also tweaked, they would only be moving money from their left trouser pocket to their right.
• Disposals are clearly anticipated and, though the choice of buyers will be very limited, this should have been taken into account.
Premier Foods – a ‘cold weather’ stock?
• See earlier comments on depressed temperatures in July, August and September. So much for global warming.
• Nielsen numbers, reported by rival brokers, suggests that iced-cream (not a PFD product) had a poor summer but that other categories, sauces, curries, soups, custard etc. performed more strongly than they did a year earlier.
• Add to this cheap milk. Milk is the group’s largest single food ingredient and low commodity prices in general and you have another tail wind.
• Comps are easier and a glance (drop us a line) at the quarterly LfL sales numbers suggest that Q2 (the quarter to end-September) should be quite good.
• Supermarkets are ‘aligned’. However this is dressed up, it is good news rather than bad.
• Directors have been topping up share holdings at around these levels, debt should ‘come down materially’ this year and the company reports H1 numbers on 10 November…
UK interest rates:
• Since the US missed its employment numbers on Friday, there has been some speculation that Sterling interest rates could rise before those in the US
• Betting in both cases is now for around March 2016.
• Bank of England’s MPC (and minutes now combined on the same date) will be out at 12.00 today (this email is timed around 11am for clients, 4pm for others)
• This should be no-change to rates at 0.5% (where they have been since March 2009) and 9-0 or more likely 8-1 in favour of the above.
• There should be no change to £375bn QE.
• Some suggestion that UK rates could go either up or down by 0.25%. If they were to go down (a long shot) then Sterling would weaken appreciably.
Random information, hopefully not all of it useless (re most leisure operators etc.):
• Some respite for chocolate lovers as the price of cocoa has tumbled after recent rises.
• Further good news for chocolatiers as the price of milk remains at recent low levels. Somewhat delayed numbers for August show no recent recovery in prices
• Tesco’s shares turned around over it’s analysts’ meeting yesterday morning to reverse early falls. The stock finished as a FTSE100 top-ten riser, second only to Aberdeen Asset Managers as a non-mining winner.
• Travel stocks the big losers yesterday (IAG, EasyJet, Carnival, TUI amongst top ten FTSE100 fallers)
• Tesco: At the risk of repeating ourselves from this morning, just what is Tesco doing holding on to Giraffe?
• Tesco – see Nick Bubb comments re failure of directors to buy shares. Retail Week has channelled criticism at Dave Lewis for not purchasing shares in Tesco, particularly following Morrison’s boss David Potts’ decision to acquire a stake in the company that he now runs. Lewis says he and fellow board members have agreed to ban themselves from trading in Tesco shares. “We are in possession of quite considerable inside information about what may or may not happen in the Tesco group.” He goes on: “Add to that the regulatory review, which we have to deal with confidentially, and we as a board took a decision that while those things were ongoing, we would exclude ourselves from being able to trade Tesco shares.” Hum…
• Dart Group very strong, read across helpful for Thomas Cook.