Langton Capital – 2015-10-26 – Sugar taxes, consumer trends, Royal Caribbean & other:
A Day in the Life:
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Find previous emails at http://www.langtoncapital.co.uk/daily-notes/
So the clocks have gone back and, apparently, we got an extra hour in bed over the weekend, not that I could honestly say I felt better-rested as a result.
Because I was herded into the garden where ‘the brambles needed cutting back’ after which, in a selfless show of defiance, I managed to transfer pretty much every briar thorn from the plants from whence they came into my various digits such that I have had to spend a large part of the time subsequently pulling them out.
And that’s not a labour of love, I can tell you.
In fact it’s darned unpleasant and it does lead me to question, as he runs up and down through piles of felled bramble stems, climbing roses, leggy gooseberry bushes and the like, just what’s going through the dog’s mind because his feet must be a veritable pincushion. On to the news:
Pub, Restaurant & Drinks Producer News:
• Sugar tax row rumbles on, health bodies + public said to back a tax, David Cameron looking a little hasty in saying it was not helpful. The Observer commissioned a poll showing that 53% of respondents were in favour of a sugar tax. Professor Neena Modi of the Royal College of Paediatrics and Child Health said ‘the groundswell of support for taxes on unhealthy food and drinks in order to improve the health of the nation is becoming increasingly difficult for government to ignore.’ NHS England reports ‘there’s growing support for broad-based action to encourage – and where necessary force – manufacturers to decisively cut the added sugar they ladle into children’s fizzy drinks and junk food.’
• Report by Schools + Student Health Education Unit suggests youngsters are online more + drink + smoke less. Stating what is obvious to most operators, the body puts some details on the trend saying that the percentage of 14 and 15 year old boys who have drunk alcohol in the past week dropped from 32% last year to just 15%. Whilst directionally it is hard to disagree that young people are drinking less, this looks like a suspiciously large drop in just 12mths.
• Aldi hikes wages, now pays >NLW. Says ‘just as Aldi won’t be beaten on the low prices of our products, we are also committed to offering the best pay and benefits in the industry.’
• Suntory is considering a move into the premium UK beer market as it looks to remain competitive following SABMiller and AB Inbev’s merger. The Japanese spirits maker admits it must adapt to ‘the more competitive situation globally’ but says it has a strong offering in the premium end of the market, which it is looking to expand on.
• Brewhouse and Kitchen has eight sites with a further three secured, but wants to expand to 50 pubs across the country. Investment manager at the company’s backers Puma VCT, Rupert West, told the M&C: ‘The funding we have already provided and the agreements we have in place should get them to about 20 unit in the south of England, which is a strong start for a branded business. After that we would like to be involved further and help them grow out to be a bigger, 50-plus unit brand.’
• US soft drink company Dr Pepper Snapple Group has raised guidance after a strong Q3, with year-to-date net profits up 4.7%. Sales totalled $4.74bn for the nine-month period.
• Lidl is increasing its core wine range by more than a third, from 60 wines to around 80, as well as focusing more on premium spirits.
• Vietnamese restaurant group Pho is on track for c£20m of sales and EBITDA growth of over 25% in the year to the end of February 2016. Like for like sales are up around 8% so far this year and the group has a strong pipeline with upcoming openings including Cambridge and Ealing.
• The International Agency for Research on Cancer (IARC) publishes its conclusions on classifying the cancer risks posed by red and processed meat today. The review has been lobbied by industry figures who fear potential headlines could damage the image of certain kinds of meat.
• Deliveroo is rolling its service out to the UAE and Australia in the first week of November, the M&C reports. Next on the group’s list include Singapore and Hong Kong.
• Brookfield Drinks has launched its 8% ABV ‘artisan amber’ Diamond Black cider to join its Diamond White brand, with more variants planned. Nigel McNally, managing director of Brookfield Drinks, said: ‘Cider is back in fashion and we believe that the artisan Diamond Black variant will be a big hit with both existing customers looking to try something different, and new customers enjoying cider for the first time.’
• Diageo has launched Hop House 13, a 5% ABV ‘full-flavoured, hoppy lager’, and the first lager to emerge from its Guinness Brewers Project. The drink was launched in the on-trade in Ireland in April, and has reportedly gained 2.8% of the lager market after finding success in the 21-35 year old bracket.
• Ed’s likely to change hands. Bowmark Capital, which owns Drake + Morgan and TPG are vying for control.
• Ed’s Easy Diner CEO Andrew Guy and Chairman Stephen Greene are set for a £20m windfall from the sale of their 1950’s-themed chain. The group is under auction and is expected to fetch a price of more than £100m.
• Sainsbury’s could triple the number of c-stores if its ‘micro’ supermarket format proves successful. The retailer is experimenting with the opening of a 1,000 sq ft store shop in central London, which has fewer groceries but more of a focus on fresh produce.
• Debenhams wants food sales to make up 10% of its sales in the medium term after introducing concessions for a range of operators. Costa, Ed’s Easy Diner, Chi Kitchen and Patisserie Valerie have all opened up in Debenhams stores this year and the retailer said food sales currently make up c3% of its sales mix.
Holidays & Leisure Travel:
• TUI Group announces will reduce its equity holding in TUI Russia from 49% to 25%. Severgroup will increase holding to 75%. The two shareholders will then provide new equity with TUI’s share amounting to $3m.
• Royal Caribbean reported ‘Strong Third Quarter Results’ on Friday. Group raised adjusted EPS guidance to 480c per share.
• RCL Q3: $500m buyback + says ‘looking ahead to 2016, the current order book is better than same time last year for both volume + price.’
• RCL Q3: Net yields +5.1% in constant currencies + costs excluding fuel down 1.8% on the same basis. Net income was $228.8m, 103c per share.
• RCL Q3: CEO Richard Fain says ‘our business trajectory keeps us solidly on the path to the Double-Double’. He adds ‘we are enthusiastic about the overall strength of our brands and our ability to continue our dramatic profitability growth.’ CFO Jason Liberty reports ‘as we have reiterated throughout the year, we remain ahead on both pricing and volume versus same time last year. While Latin America is stressing yields in the fourth quarter, strong year-over-year pricing in the Caribbean, and the addition of capacity in China, will solidify this fourth quarter as the best in our company’s history.’
• RCL outlook: Says ‘is experiencing good early booking trends for 2016’ and early booking cycle is ‘encouraging’ for 2016.
• Parisian hoteliers are demanding that Airbnb be more closely regulated after the flat-sharing platform continues to grow. The Union of Hotel Industry Trades has published research that it says shows Airbnb is no longer part of the ‘sharing economy’ and should be taxed and regulated in the same was as hotels.
• Shares in Glasgow-based travel firm Minoan Group have jumped 25% to 8.75p on speculation that its Crete resort may be given the go ahead. In an announcement to the stock market the company said it noted the share price rise and said it believed the process of approving the presidential decree was ‘now under way’.
• Sportech has announced that CFO Cliff Baty has advised the Board of his intention to leave the group in order to move to Manchester United. The group adds ‘his contract with Sportech has a notice period of 12 months, but his actual departure date will be confirmed in due course. In the meantime, Cliff will continue with his existing responsibilities and the search for his successor, both internally and externally, has now commenced.’
• Spanish theme park operator Parques Reunidos set to change hands. Two UK & two US PE houses said to have made bids. Prospective new owners named as Advent, Apax, Carlyle and KSL Capital. Value of deal could be around €2bn reports Reuters. Candover and latterly Arle Capital have owned Parques Reunidos since 2007.
• Alphabet, previously Google, has reported Q3 revenues of US$18.7bn and 735c per share in earnings
Finance & Markets:
• Bank of Italy deputy Fabio Panetta reports Europe’s economy needs more monetary stimulus to support inflation. Suggests rates could stay low for some time. He told the Corriere della Sera newspaper ‘inflation has been well below our target for the Eurozone for some time and it could continue to be too low for several quarters. Worsening conditions in the global economy weigh down on raw material prices and expectations of inflation. This requires more monetary stimulus.’
• World markets: UK and Europe up on Friday. Wall Street also higher + Far East up on Mon trading
• Oil price little changed. Still trading at around $48.20.
• China cuts one year benchmark interest rate by 25bps to 4.35%. Markets respond positively
Langton Licensed Retail Index – Major Movers
It was a strong week for the LRI which was up 4.07% versus a 1.19% rise in the All-Share as oil and gas stocks held the wider market back and domestic stocks outperformed.
Merlin led the risers gaining 6.85% over the week as the group announced a JV which will see it launch a Legoland in Shanghai, as well as other attractions across the country.
Market favourites SSP Group and Domino’s rebounded strongly rising 3.36% and 5.25% as the domestic stocks seemed to rally following a weak period in the markets through smaller LRI constituents had a less eventful week, with Revolution and Pat Val rising 0.1% and 0.92%.
Whitbread was up 5.2% as the company updated on its first half year last week which saw double digit growth in underlying sales, EPS, profit and dividend. The group reassured on China trading despite the recent slowdown in the world’s second largest economy.
JDW was the winner of the FTSE 250 pubcos rising 4.25%, however, it was a good week in general for the pub companies with M&B up 3.11%, Marston’s up 3.06% and Greene King up 2.56%. The tenanted pubco’s Enterprise Inns and Punch Taverns had a worse week, however, falling 3.26% and 2.4% respectively. Will Brumby – email@example.com
Langton Food Retail Index – The Grocer’s Dozen
The Food Retail Index outperformed the FTSE 100 by around half a per cent last week, up 1.75% thanks to strong showings from Booker and Ocado. While Booker is well managed, and Ocado boasts a disruptive business model, both companies are highly valued and trade on PE ratios of 28 and 285 (falling to 198) respectively.
M&S (up 5.4%) and Ocado were the main movers in the Grocers’ subsection.
In a week where Marks & Spencer introduced its new loyalty card, Sparks, the popular retailer’s CEO Mark Bolland also reportedly told the board that he intends to stay in his post for another two years. Bolland’s tenure so far has seen the group’s food division perform strongly, although its fashion ranges and clothes sales have continued to struggle.
MKS shares have come down by 13% to 517.5p following its 52-week high of 597.5p in May despite BRC-KPMG figures pointing to a strong September for much of the industry, with retail sales growing at their fastest rate since January 2014 of 3.9% in the month.
Ocado was another notable mover, up 10.28% to 370.8p. The group’s share price volatility could distract some investors although its PE premium should continue to fall if it can execute its online and warehouse retail model and grow profits quickly.
BME had comfortably the best week of the discounters, up 4.22% to 338.31p as it continues with its programme of store openings. B&M is also on a fairly lofty PE valuation of 32.9 times, though this falls to 26.9 next year according to forecasts and the group is expected to carry on growing its dividend.
Booker rose 6.19% in the aftermath of its recent trading statement on 15 October, in which the food wholesaler posted a 10% rise in interim pre-tax profit to £74.1m and said trading in the first four weeks of the current half is ahead of the same period last year. Jack Brumby – firstname.lastname@example.org
Retail Roundup from Nick Bubb:
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:
Rugby proved (and proving) to be a bit of a boost:
• Don’t forget that the super-late August Bank Holiday will have bolstered September sales but, even with that in mind, it appears as though the Rugby World Cup could have been positive for retailing.
• Various measures have had September looking good.
• ONS has Sept sales for food retailers +1.0%, for non-food retailers +4.1% and for online retailers +13.6%.
• Men’s clothing apparently sold well whilst in licensed retailing, wet-led pubs have had their day in the sun whilst food-led units and restaurants performed less well.
• Re deflation, keep in mind the fact that discounting is still with us and the ONS recorded a 3.6% YoY decline in shop prices which, apparently, is the joint weakest reading on record.
Online selling, a race to lose money?
• Sometimes the game takes over.
• And arguably it shouldn’t as the result should be what matters but, when various CEOs etc. take online penetration, home-delivery, click-and-collect sales and the like as KPIs, they will rush headlong towards their perceived goal.
• And that shouldn’t be surprising. If you paid Wayne Rooney to win corners he’d be less inclined to put the ball in the back of the net but, surely, its profitability that counts?
• And 1hr delivery, what’s all that about?
• If you ask the consumer ‘would you like a Tesco-shop-sized van to pitch up outside your house every few hours to top up your shopping?’ you may say yes but, at the end of the day, it would be unlikely to net the retailer much of a margin.
• Put MRW into this mix (and now ASDA) and you have a company that, arguably, is willing to say ‘this is what we’ve got; it’s high quality & cheap and if you want it, then come and get it.’
Mario Draghi, what a tease:
• Interest rates; could go up, could go down.
• Not one to be out-foxed in the out-foxing department by his opposite number at the Fed in New York, Mario Draghi has said that interest rates could go up or down.
• Well, to be fair, they can’t go down by much but the market (very much in a bad-news-is-good-news mood) was much heartened by his suggestion that QE could be stepped up on the Continent.
• And, whether the central bankers both sides of the Atlantic succeed or fail in steering the current ‘recovery into its fifth or is it its sixth year, they can’t be accused of not having read their text books.
• Because keeping liquid funds both in the system and moving from point A to point B is both 1) extremely necessary and 2) the goal of much current manoeuvring.
• Certainly much of the boom was arguably of their own making but, though the individuals have changed in all cases, the response of the authorities to the credit crunch has been co-ordinated and, arguably, correct.
• Hence the scale of the help that is being heaped on the market is testament to just how foolish markets were in the period 2002-07.
• There’s not a lot that we can do about that now but it helps to put the regulatory response into some sort of context.
Langton investigates…King’s Cross development:
• You might’ve noticed King’s Cross is changing.
• The buzz was unmistakable when we visited the nearby food market last Friday, on our way to check out the new Drake & Morgan site which has opened close to the German Gymnasium.
• A 67-acre King’s Cross estate is the largest of its kind being redeveloped in Europe, and should house 2,000 new homes, 20 new streets, 10 new public squares, 26 acres of open space, and 30,000 people by 2016. Commentators assert that it is likely to be worth more than £5bn ‘when it is completed in five years’ time.’
• Taking a walk around the area, it is easy to see how far King’s Cross has come. Gone are the tottering drunks and insalubrious night life elements, replaced by calming water fountains and a quirky swing set within a human-sized birdcage. One man with flecks of grey in his hair was having a go as we walked past, briefcase off to the side, surrounded by a vibrant mix of students, backpackers and businesspeople.
• When the University of the Arts London moved in to the Granary Complex in September 2011, a variety of trendy restaurants, hipster bars and artisanal coffee shops followed. Even now some of the City’s sharpest operators are moving in to an area that is only set to get bigger with the imminent construction of Google’s new UK headquarters. Drake & Morgan has just opened a new Refinery site just up the road from Vinoteca and Notes, with Caravan and Camino short walks away. It looks like a canny opening. Other operators must surely be contemplating the move.
Random information, hopefully not all of it useless (re most leisure operators etc.):
• Bit of a downer on DIY, housing etc. Slightly comparing apples with oranges here but, in the last couple of days, shares of Travis Perkins, SIG, Howden Joinery, Foxtons and others have taken a bit of a beating.
• No change to the oil price. Seems to be stuck (for the moment) at around $48 a barrel.
• Nice to see McDonald’s back in LfL growth in its home market. Brit group CEO Steve Easterbrook is either lucky or good – and he may be both.
• MERL – PDMR selling. Probably not too much to be read into this as PE ownership will have been spread to a number of individuals some of whom, for perfectly understandable reasons, will be inclined sellers of the stock.