A Day in the Life:

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Find previous emails at https://www.langtoncapital.co.uk/daily-notes/ 

I was somewhat taken aback yesterday when I had to pay a couple of bills & the creditors in question hadn’t enclosed their bank details.

This meant that I had to write two cheques, something that 1) I haven’t had to do for some time and which consequently 2) felt positively medieval.

And it wasn’t convenient either because my main bank has stopped sending me cheque books meaning that I had to transfer some money to the Yorkshire Bank, a traditionalist bank and an account that I have held since the days of black and white television, and then pay the cheques out of there.

So come on people, get with the programme. On to the news:

The News:

Pub, Restaurant & Drinks Producer News:

• Q1 sales at Pernod +3% organically at €2.2bn. Says is ‘confirming the continuation of a gradual improvement in Sales growth’.

• Pernod Q1. Europe sales +3%, Americas +6% (driven by US) and RoW +1% ‘due to a difficult environment in China’.

• Pernod Q1 reported sales growth 9% (v3% organic) on € weakness. Top brands ‘posted a good performance (+2%)’. Brands ‘driven by Jameson and The Glenlivet.’ Pernod says ‘priority Premium Wines rebounded at +8%, due to improvement in the UK and Australia’ and adds ‘the 18 Key Local Brands grew +5% thanks to Indian whiskies and Passport.’

• Pernod CEO Alexandre Ricard reports ‘we continue to implement our long-term growth strategy, while increasing investments.’ He goes on to say ‘the beginning of the financial year is consistent with our scenario of continued gradual improvement in Sales in a contrasted environment. We are aiming for +1% to +3% organic growth in Profit from Recurring Operations for FY 2015/16 and we expect a positive but volatile foreign exchange impact’. He says ‘we continue to implement our long-term growth strategy, while increasing investments behind our priority brands and innovations and remaining very disciplined on costs and pricing’ and concludes ‘over the full 2015/16 financial year, the foreign exchange impact on Profit from recurring operations is estimated at approximately +€ 20 million, based on average FX rates for full FY 2015/16 projected on 16
October 2015, particularly a EUR/USD rate of 1.13.’

• Wagamama is reported to be set to scale up its takeaway offer with the launch of new packaging from yesterday

• Coca Cola reports Q3 numbers, says net revenue declined 5% and organic revenue grew 3%. EPS 33c v 51c. Revenue in North America was up only 1%, driven by sales of energy drinks.

• Coca Cola Q3: global volumes +3% + says should ‘expect full-year comparable currency neutral EPS growth of 5%’ and says this is ‘in line with the range laid out at the beginning of the year’. CEO Muhtar Kent reports ‘our third quarter results were in line with our expectations and reflect the continued execution of our strategic initiatives to restore momentum, which are beginning to take hold across our global business.’ He says ‘by aggressively driving productivity and streamlining the business, we are funding investments to accelerate growth.’ He concludes ‘the Coca-Cola Company remain confident in our strategies and committed to the creation of long-term shareowner value.’

• BHA says government should take action against companies that are not transparent in their tips policy but ALMR says do not legislate. Ufi Ibrahim, CEO of the BHA, reported ‘although restaurants are legally entitled to deduct administration costs from service charges, for example, we think it’s important the customers understands exactly how much is deducted and why’. She continues ‘customers should be able to reward good service and know where their money ends up and how much of it goes to the staff.’

• Diageo is selling its Chalone Vineyard winery after it was left out of last week’s £361m deal with Treasury Wine Estates. Diageo purchased the Californian winery for $260 million (£170m) in 2004, when current CEO Ivan Menezes led the company’s operations in North America.

• A chief nutritionist has told members of the House of Common’s health select committee that a sugar tax could help the UK’s ‘obesity problem’. Concerning the efficacy of the proposed measures, Alison Tedstone, chief nutritionist at Public Health England, added: ‘The higher the tax increase the greater the effect’.

• Three French brothers are opening an offshoot of their two Michelin-starred Taillevent on Cavendish Square, London.

Holidays & Leisure Travel:

• Travelzoo is urging all UK MPs to attend a debate in Westminster on the issue of for taking children on holidays in term-time. The firm will back a ‘common sense approach’ after research showed that 49% of teachers say that term-time fines are damaging their relationship with parents.

• UKinbound has welcomed confirmation of a cut in the cost of visas for Chinese visitors to the UK, with a long term multi entry visa just £85. UKinbound chief executive, Deirdre Wells, said: ‘China is a vitally important market for our 350 members and this announcement will greatly help to boost the UK’s competitiveness.’

Other Leisure:

• Ladbrokes Q3: Says ‘trading [is] in line with our expectations – strategy implementation  [is] underway.

• Ladbrokes says group revenue down 0.7% in Q3 but up 2.0% excluding impact of last year’s World Cup. UK retail down 1% (up 1.1% ex W Cup)

• LAD Q3: Says group EBIT £14.3m. Says stakes are +1.6% (or +3.5% adjusted for shop closures) but margin down 1.5ppts

• LAD Q3: CEO Jim Mullen reports ‘these numbers reflect the first 68 days of activity since we announced our organic plan to aggressively invest and grow our recreational and multi-channel customer base particularly across UK Retail, Ladbrokes.com and Ladbrokes Australia.’ He goes on to say ‘it is early in our journey, but today’s results reflect positive initial progress and customer traction with continued increases in staking and actives across Digital and improved staking trends in UK Retail driven by football and racing.’ Mr Mullen concludes ‘the focus now is on building on this start’ and says ‘the proposed merger with Coral is on track and, after raising £1.35 billion bank debt to finance the merged group, we will shortly be issuing the shareholder circular.’

• Camelot has announced its highest-ever interim National Lottery sales and record prize payouts in the six months to 26 September 2015. The National Lottery operator succeeded in growing total ticket sales to £3.6bn, up £145m on the same period last year, and awarded a record £2.01bn in prize money.

• The upcoming public offering of Italian car manufacturer Ferrari has been priced at the top of its range, valuing the brand at US$10bn. Ferrari owner Fiat Chrysler is hoping to raise US$893m through offloading a stake of around 9.1%, with each share priced at US$52.

• Microsoft’s Windows 10 operating system is set to follow Google, Apple and Samsung in bringing out a payments service for mobile consumers. The service will be called Windows Hello and will let users store data from credit, debit, store and loyalty cards.

Finance & Markets:

• Government borrowing fell in the first six months of the financial year to £46.3bn, down £7.5bn or 13.9% year on year, according to the ONS.

• World markets: UK higher, Europe mostly up but US lower in Weds trade. Today, Far East mostly lower in Thurs trade

• Oil little changed, down a shade at around $48.10 per barrel. Venezuelan President Nicolas Maduro has called for $88 oil

• Governor of B of England Mark Carney has said in a speech that Britain derives material benefits from its membership of the EU

Retail Roundup from Nick Bubb:

Debenhams:
Ahead of today’s finals, there had been growing rumours that the recent investor unrest at Debenhams would claim the scalp of the beleaguered CEO Michael Sharp, but at first sight today’s statement seemed to brush this aside, with Mike saying “We have delivered profits in line with market expectations, reflecting further progress against our strategic priorities. We have had an encouraging start to the year…”). Then a couple of minutes later up pops a separate statement, headlined “Debenhams announces that Michael Sharp intends to step down in 2016 after 5 years as Chief Executive”, in which Mike says that “I hope being transparent about my intentions will stop recent speculation becoming a distraction” and, with the key Xmas trading period coming up ,we wish him good luck with that. But exactly when he intends to step down is
unclear (his 5 years is not up until September 2016…) and who will take over as CEO is also unclear. If the embattled Chairman  Nigel Northridge means what he says (“The Board are confident we have a clear and effective strategy”) then the obvious internal candidate, the Trading Director, Suzanne Harlow, will be in with a good chance, but if Debs decide in the end to pursue a different strategy then an outsider will probably be brought in. Anyway, the 9am analysts meeting should be interesting…

Travis Perkins: It is always worth listening to what the builders merchant and DIY company Travis Perkins say about housing market activity and the trading outlook, so today’s warning with the Q3 update that “Given the recent market weakness we now expect to deliver EBITA growth at the lower end of market expectations” will unsettle investors….

Home Retail:
We noted yesterday that, although Argos is struggling, at least Homebase is doing well, and the new MD, the improbably named Echo Lu, was given the chance to speak about the business at the H1 results presentation to analysts. We didn’t particularly like the way she spoke only about the “strengths” of Homebase and the “opportunities and threats” that it faces, without mentioning any “weaknesses”, but she redeemed herself by noting the success of the new “display-ready” range of flowers in the garden centre department. But all the focus was on Argos and the CEO John Walden admitted that while the sales and profit decline in H1 was “directionally as expected”, the outcome was “nevertheless disappointing” and that, after a tough August, the lack of the expected “step-up” in sales in September
had made them more cautious about the pre-Xmas outlook, given the extra £10m loaded on to fixed costs from the investment in “Fast Track” logistics and marketing. The FD Richard Ashton said that they still needed to see H2 LFL sales increase at Argos to meet the new full-year PBT guidance, but that sales were tracking about 1% below what they’d hoped for, given the 3.4% LFL sales decline in H1…John Walden said he took “cold comfort” from the fact that market share improved in many Electricals categories in H1 (given just how bad the markets were in tablets, PC’s, TVs and photo), but he admitted that AO.com and Dixons were “ahead” of Argos in white goods, in terms of Online service and the home delivery offer.

Waitrose Watch:
As we flagged yesterday, the entire Waitrose management team were at the Finchley Road Cookery Skool last night, for the estimable CEO Mark Price to unveil the Waitrose “Annual Food and Drink Report” to the press and analysts…and celeb supporters like Alan Titchmarsh, Pippa Middleton and the Bishop of Liverpool! Mark pointed to the section of the Report analysing the “biscuit dunking” habits of the nation as “a must-read” and it would appear that the students of Oxford prefer dark chocolate digestive biscuits and the students of Cambridge prefer milk chocolate digestive biscuits! And the affable CEO-elect, the Retail Director Rob Collins, said that the new store opened in Oxford last week had got off to a good start, although the upcoming Guildford and Basingstoke stores will also be big earners. nicholas_bubb@hotmail.com

Wednesday 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:

Merlin & China JV:

• JV looks like good news.

• MERL shares are on 21x this year (Dec 15) and next as a result of the hit taken in the wake of its unfortunate Alton Towers accident.

• Model is scalable, China is big and, for a company that looks set to continue delivering, 21x earnings doesn’t look like too high a price to pay.

Remember the ‘dash for trash’? It’s not a good idea (until it is):

1. You recall the Fast Show sketch, chap goes out for some bread & comes back with a rabbit skin, a Christmas hat and a pound of nails?

2. It’s a bit like that with shares. You know you should buy good companies, you’ve got an idea when their share prices are attractive but what do you do, you get seduced by what’s cheap, stock up on rubbish.

3. That’s too simplistic, of course but, when a share price declines, it’s easier to live with oneself if one has bought a good (rather than a less-than-good but cheap) company.

4. Good companies on our patch include Whitbread, Merlin and SSP. Arguably also JDW. Companies that should be and probably will be good include TCG, MARS and a number of others.

5. Hence pick a stock, pick a price and put in an order. MERL is probably attractive right now. WTB might be a couple of quid the wrong side of fair value, JDW 40p high etc.

6. However, in reality, go back to 1.

YUM splits off China, precedent for Whitbread:

• Probably not but, given the YUM has decided to spin off its China operations, Whitbread may choose to dust off its own calculations re Costa

Sugar – a smoking gun?

• In a world of grey it perhaps shouldn’t be surprising to see that the case against sugar is unproven.

• Or at least only partially proven.

• Tim Martin may be dismissing Jamie Oliver as a weepy do-gooder (a ‘show-boater’) but that might be a little harsh.

• In fact being obliged to pay a little more for something that might adversely impact your health doesn’t seem to be altogether a bad idea.

Random information, hopefully not all of it useless (re most leisure operators etc.):

• Home Retail shares drop on news that 24hr delivery costs a lot. Not a surprise, surely. Brings back to mind MKS comment last week that Black Friday (and home delivery, click-and-collect etc.) does not expand the market – but simply introduces a different type of competition.

• Sterling a little stronger against both Euro & US$. Good news for most importers, commodity users & purveyors of overseas holidays.

• Oil price stable below $50, precious metals moving up a little.

• IHG and WTB the major movers yesterday, both on results. And looks like ARM (figures) and MERL (China JV) will also be moving higher on RNSs this morning. Home Retail & Pearson not so much.