A Day in the Life:

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

So having seen off the last of our gerbils, I had thought that we were free of (domesticated) rodents chez Langton.

But I underestimated pester-power and, it would appear, we now share our humble abode with two dwarf hamsters which, despite being ‘friendly and able to live together’ seem to spend the night fighting when they’re not gorging themselves in order to escape their dwarf moniker or are belting around on the squeakiest wheel I’ve ever come across.

And then they spend the evening tearing around the living room and banging into each other in their hamster balls all of which is driving the dog mad.

However, all is not lost as the things only live for around 2yrs so roll on 2017. On to the news:

The News:

Pub, Restaurant & Drinks Producer News:

• AB InBev Q3 numbers, says revenues +7.9% in Q3 ’with solid revenue per hl growth of 6.3%’. Premiumisation has driven sales.

• AB InBev Q3: Says ‘on a constant geographic basis, revenue per hl grew by 7.8%’. 9mth sales +6.1%.

• AB InBev Q3: Says ‘total volumes grew by 1.5% in Q3 with own beer volumes up 2.3% + non-beer volumes down 6.1%.’ It says ‘the growth in beer volumes was driven mainly by strong performances in Mexico and Latin America North, as well as an easier comparable in the US.’ For the 9mths to date, ‘total volumes declined by 0.6%, with own beer volumes down 0.2% and non-beer volumes down 4.0%’.

• AB InBev Q3: EBITDA grew by 9.6% in Q3 to US$4.4bn with margin +58bps. Normalised profit was US$1.67bn v US$2.32bn last year

• AB InBev Q3: EPS 102c vs 142c last year. No additional comment on the agreed SAB Miller bid approach. 

• UK consumer confidence slipped in Oct per GfK. Now at 4mth low. GfK reported ‘good news on the domestic front -– with households lifted by wage growth, low interest rates and near-zero inflation -– is being tempered by concerns about our ability to shrug off the global downturn.’

• HMG yesterday launched first part of consultation into pubs code. Principle being a tied tenant should be no worse off under tie.

• Proposed pubs code: ALMR welcomed the opportunity to comment, BBPA says will need to study the detail. ALMR CEO Kate Nicholls said ‘this has been a polarising debate and the ALMR has continually emphasised a pragmatic and moderate approach. We have been working closely with BIS over the summer to ensure a workable solution for businesses and to secure investment across the sector, from both landlords and other sources, to secure funding for lessee investment and will continue to make the case in these consultations.’ She concluded ‘following this we hope that Government will set out the details of the Code implementation in a timely fashion to provide the sector with some degree of certainty going forward, particularly for those going ahead with rent reviews.’

• BBPA CEO Brigid Simmonds said regarding the proposed code ‘there is a large amount of detail to be studied in these proposals, but I do welcome that the Government appears not to be proceeding with parallel rent assessments, which we always argued strongly would be too costly and complex to operate.’ She said ‘we also welcome proposals to allow for an MRO waiver in return for a significant capital investment. Over £200 million is invested by BBPA members in their leased and tenanted pub estates, each year. It is essential that this investment continues.’ Ms Simmonds concluded ‘we will be responding in detail as we do need to work very closely with Department of Business, Innovation & Skills, and tenants’ representatives to make the legislation work in practice.’

• JW Lees has announced that catering director Christina Lees-Jones has decided to step down from day-to-day operations at the company. She will become a non-executive Director from the 1st December 2015. Ms Lees-Jones has been with the company for 22yrs. The group said ‘we look forward to working with Christina in her new role where her vast experience will help to challenge and support the JW Lees team with the future operation of the business, including the education and development of the seventh generation of the founder’s family as they start to join the business over the next few years.’

• Bottler + distributor Coca Cola Enterprises reports Q3. Said earned 72c vs 84c last year on sales of $1.8bn (down 14.5%). CEO John Brock reported ‘we continue to face a marketplace impacted by persistent softness in the consumer environment. Given these conditions, we are continuing to seek new ways to grow net sales and increase our effectiveness and efficiency as we work closely with our customers to enhance our prospects for growth.’ He continues ‘we will continue to manage each element of our business to deliver against our outlook for the year, even as we prepare for the launch ofCoca-Cola European Partners in the second quarter of next year,” Mr. Brock said. “To accomplish this, teams are focused on three key areas: delivering against their operating goals for the year, closing the transaction on a timely basis, and planning for a successful
transition to the new company.’

• Coaching Inn Group-owned White Hart Hotel in Boston has opened the doors to its new-look, all-day bar post a £100k refurbishment. Manager Adam Charity reports ‘we wanted to create a more relaxed eating and drinking style and think we’ve achieved this through a combination of a modern yet cosy look and feel and a brand new menu including top quality coffees, fresh patisseries and a brand new cocktail menu.’

• Starbucks Q4 + FY: Reports Q4 LfL sales +8% globally, +9% in US. Global traffic +4%, total revenues +18% to $4.9bn.

• Starbucks Q4 + FY: EPS in Q4 hits record 43c, group says it is issuing a notice of the ‘Strong Outlook for Fiscal 2016’.

• Starbucks Q4 + FY: LfLs in China/Asia Pacific +6%, driven by a 6% increase in traffic. EMEA LfLs +5%, footfall +3%

• Starbucks Q4 + FY: Opened 524 net new stores globally in Q4. FY LfLs +7%, total sales +17% to $3.6bn.

• Starbucks Q4 + FY: CEO Howard Schultz reports ‘Starbucks record Q4 financial results, highlighted by stunning comp store sales increases of 8% globally, 9% in the U.S. driven by a 4% increase in global traffic, demonstrate the strength and relevance of the Starbucks brand around the world’. CFO Scott Maw adds ‘Starbucks performance in Q4 reflected a continuation of the pattern of accelerating momentum we saw with each successive quarter of fiscal 2015.’ He says ‘our Q4 results are particularly gratifying in that they were achieved despite the increase, and acceleration, of the significant partner and digital investments we are making to drive sustained, profitable growth around the world and into the future.’

• Camerons Brewery is seeking a £5m refinancing package to buy 30 managed and 20 tenanted pubs over the next five years, writes M&C. The group is also considering private equity backing for a major acquisition of up to 200 pubs and wants to ‘return to the traditional regional brewer model of owning 500 pubs’.

• Street Feast parent London Union has launched a Seedrs initiative to raise £3.5m for a permanent street food market in central London. Investors will become ‘Union Members’ with benefits including a seat on the advisory board.

• London Union: Founded by Leon’s Henry Dimbleby and Street Feast’s Jonathan Downey, and with an advisory board of investors including Nigella Lawson, Jamie Oliver, Yotam Ottolenghi, Russell Norman from the Polpo Group, Soho House’s Nick Jones, London Union reads like a who’s who of the food industry. Its street food markets were visited by more than 300,000 people over five months this spring and summer, generating £3.5m of revenue and £1.5mof market EBITDA (excluding overheads and costs).

• London Union: Henry Dimbleby commented on the popular movement: ‘Although only five months old, London Union is already very profitable. This profitability enables us to open commercially-sustainable markets that bring communities together, create employment and provide opportunities for new food entrepreneurs to establish themselves without requiring large amounts of capital. We are doing this fundraising so we can move fast to open the world-class, permanent street food market that London deserves.’

• Australian casino giant Crown has taken a c20% stake in 32-site luxury dining business Nobu for AUS$100m. Crown owner James Packer is expected to take a seat on Nobu’s board.

• Global wine production is thought to have grown by 2% to 275.5m hectolitres in 2015, with Italy remaining the world’s biggest producer. The report from the International Organisation of Vine and Wine (OIV) also found that Portugal and Romania have seen volumes growth of 8% and 9% respectively, while volumes in Chile rose 22.6% and Australia and New Zealand production remained stable.

• The number of people being declared insolvent increased 2.8% to 19,683 in the third quarter, the first rise this year. The number of businesses going bust has continued to fall. The Insolvency Service added that low interest rates are continuing to prop up the finances of those who have amassed unmanageable debts.

• Lidl has begun development on its US headquarters in Arlington, Virginia, which will also function as a distribution centre. The discounter is expected to open its first US stores in 2018 and has so far committed $200m to the push.

• New research by VoucherCodes.co.uk suggests the British public is spending more than £1bn a month on dining out in independent restaurants. UK diners are spending an average of £44 per month at local independent restaurants, with 49% of people claiming that independent restaurants are their favourite places to eat out at.

Travel & Hotels:

• IAG Q3 numbers, revenues +12.5% at €6.76bn. Operating profit €1.25bn (€1.205bn excl. Aer Lingus) v €900m last year

• IAG Q3: CEO Willie Walsh says ‘we’re reporting strong quarter results with a positive contribution from all of our airlines.’ He adds ‘our passenger unit revenue showed a better trend than in the second quarter of the year and our cost performance remained strong.’ Re the outlook, the grouop reports ‘at current fuel prices and exchange rates, IAG expects to generate an operating profit between €2.25 billion and €2.3 billion for the full year, excluding Aer Lingus.’

• Accor is interested in buying Canada-based FRHI Hotels & Resorts for c$3bn and a deal could be announced as early as next month. FRHI, which operates luxury hotel brands like Fairmont, Raffles and Swisshotel, hired Deutsche Bank and Morgan Stanley to estimate the market value of the company.
 

• Expedia’s Q3 profit beat analysts’ expectations and the group now expects its Orbitz acquisition to bring more benefits than initially thought. The world’s largest online travel services company (by bookings) earned $283 million in the quarter, up 10% from a year earlier.

Finance & Markets:

• US economic growth slowed sharply to 1.5% from 3.9% in Q3 according to the Department of Commerce.

• Mark Littlewood of the IEA writes in The Times that both a welfare cap and a wage ceiling are required to tame the UK deficit.

• UK house prices rose by 3.9% in October year on year to an average of £196,807 according to a report by Nationwide. It warned that, although the price rise is ‘broadly consistent’ with wage growth, the rate of housebuilding continues to lag demand.

• World markets: UK down yesterday, ditto Europe. US lower but Far East better in Friday trading

• Oil little changed at around $48.70 per barrel.

• Shares in Japan recovered on news the country’s central bank will keep its monetary easing policy steady.

Retail Roundup from Nick Bubb:

October Macro Watch:
The monthly CBI Distributive Trades survey is not worth spending much time on, as regular readers will be well aware, but yesterday’s downbeat survey for “October” was interesting, in the light of the cautious GFK Consumer Confidence survey for October that came out overnight. The GFK survey saw the overall index dip to a four-month low of +2 this month from +3 in September, bucking economist’s forecasts for a small rise, with households’ expectation for the economic outlook over the next 12 months deteriorating (albeit the survey was conducted between Oct 1st and Oct 15th). The CBI survey’s infamous “percentage balance” slumped to +19 in October from a four-month high of +49 in September, the lowest balance since April and the biggest one-month fall in the index since February (albeit the survey was conducted between September 29th and
October 15th).

Pets At Home: Today’s pre-close update from Pets At Home is also a bit underwhelming, dashing City hopes of a pick-up in Q2: in fact the LFL sales outcome for H1 of +1.8% is only a tad higher than the disappointing Q1 outcome and the statement notes the “continuing seasonal challenge to Health & Hygiene products”. The Services side of the business is still growing nicely, but the CEO Nick Wood flags that “trading in parts of the business has been weaker than expected” and his conclusion that “our full year profit outlook is broadly in line with market expectations” is not exactly a ringing endorsement…

BDO High Street Sales Tracker: this weekly High Street sales index of medium-sized Non-Food chains organised by the accountants BDO is a helpful guide to underlying Fashion store trading momentum (ex-Online) and sales have been quite poor in recent weeks, despite weak comps. BDO has reported today that last week, w/e Oct 25th, saw underwhelming trading, with overall Fashion store LFL sales down by 1.8%, despite the soft comp. Total store LFL sales were down  by 1.5% (including Lifestyle and Homewares retailers) and overall Non-Store/Online sales were unremarkable, up by 17%.

News Flow Next Week: To kick off November, the big event next week is the Marks & Spencer interims on Wednesday, closely followed by the Morrisons interims on Thursday, but there’s plenty going on around M&S and Morrisons. On Tuesday we get the final results from ABF/Primark, plus a trading update from the car dealer Pendragon, whilst on Thursday we get the SuperGroup Q2 update and the Howden trading update. Nick Bubb – nicholas_bubb@hotmail.com

Thursday 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:

Low hanging fruit:

• Spirit showed that ‘superior’ returns can be generated when capital is focused on unloved or hitherto ignored assets.

• It would appear that Intertain is finding the same thing.

• Better Capital is putting more money into the business but it will be some time before it is clear whether the returns that can be earned on £3m can also be earned on £33m.

• Clue; they can’t.

The Far East, hotels, Emerging Markets, packaged goods (incl. drink) etc.:

• Millennium & Copthorne hotels, down 3% today on Q3 update, has said that Far Eastern markets have not been good.

• It singles out developed markets in Singapore, South Korea and Taiwan as tough and, allied with comments from various beer, spirits and food companies, it would appear as though the region is slowing.

• That’s not new news per se but, when it begins to come through in the numbers for these companies, it’s somehow more real.

Cybercrime:

• The above is a word now, it’s not even underlined in red.

• Mr Bubb this morning tells us that ‘Marks & Spencer was forced to suspend its website for three hours on Tuesday night after customers complained that they saw other people’s contact details when they logged in.’

• This may be a small issue but, in the minds of the general public (and following Talk Talk etc.) there is a problem with the proportionality of the response.

• Because customers, be they pub-goers or sock-buyers, don’t want their details blasting around left and right.

• And for good reason because, if they leave their name, address + postcode with a retailer & have their DoB on Facebook, they can be cloned & sold off in Eastern Europe pretty easily.

US interest rate intentions.

• The game of show and tell goes on with the Fed now seemingly inclined to raise rates in December.

• This had the predictable effect on equity markets, spot interest rates and currency rates worldwide.

• After a bounce, oil gave back some ground and the US$ rose.

• Commodity prices (including oil) fell a little on the anticipated ‘slowdown’ that would be caused by higher rates but, in non-US$ terms, this was negligible given the US$’s strength.

• Betting now (and there’s a feeling of déjà vu here) is on a December rise in the US followed possibly by and end-of-Q1 rise in the UK.

• Market a little juvenile. Bad news is good & v.v. Also travel companies’ shares reacting without much thought to short term movements in the oil price.

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

• Craft beer has legs. Technomic reports that craft beer sales are registering a double-digit sales gain in the US for the 5th year running. Volumes were +14% in 2014 and, on the basis that this is a trend that has moved from west to east across the Atlantic, we may well see further growth our side of the pond.

• Soybean (a.k.a. soya beans in Europe) prices down again. It’s an important input in many other foodstuffs, not least cattle. Wiki has it as ‘fat-free (defatted) soybean meal is a significant and cheap source of protein for animal feeds and many packaged meals; soy vegetable oil is another product of processing the soybean crop. For example, soybean products such as textured vegetable protein are ingredients in many meat and dairy analogues. Soybeans produce significantly more protein per acre than most other uses of land.’ The oil ‘is used in many industrial applications.’

• Sugar prices, also an important ingredient, are well off the bottom:

• Risk off day on the markets yesterday with OIGs & miners falling & pharmaceuticals, gold shares, domestics & tobaccos rising. Some engineering stocks have had a sustained poor run.