A Day in the Life:

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

Is it too much to expect a stapler to staple?

I mean a cooker should cook, right? And a hole-punch should punch holes, a ruler should rule and a kettle should, well, kettle so why can’t a stapler just put a bit of wire through some paper and bend said wire at the other side?

I must have bought four or five this calendar year and find that they all seem to give up the ghost at six or seven sheets, bend in the wrong place and either leave jagged shards of metal sticking out all over the place or simply fail in their task completely and leave you with a loosely held sheaf of papers that spill all over the floor the first time they’re violently hirled around you head.

And that happens quite a lot in your average entrepreneurial stockbroker’s office but maybe I’m being too demanding, maybe they’re in a union, aren’t allowed to work too hard or something. Paperless, let’s move on to the news:

Enterprise Inns – FY Result’s Meeting:

FY Results: Analysts’ Meeting:

Following the release of its full year numbers earlier today, Enterprise Inns hosted a meeting for analysts and our comments are set out below:

Trading:

Strategy (below) is perhaps more important than short term trading but the group was nonetheless able to say that tied pubs have performed well.

The macro situation is ‘a little better’ but the MRO is an unknown & there is a lot of restaurant capacity going on

The group has recorded a second consecutive year of positive LfLs and business failures are down. These ran at 7.9% in FY15 and may stabilise between 6% and 7%

Profits from both beer retailing and rent were up (by £1m and by £2m respectively)

Investment will be ongoing – but this will be concentrated on short leases, tenancies and to-be managed units

The first 6wks of the new financial year have been ‘good’, the group’s tied offer will be re-launched in the spring and conversions and disposals, in line with the group’s may 2015 strategy, will continue

Balance Sheet:

>90% of assets are now valued externally. The write-down may have been ‘a little higher than anticipated’ but it was focused in the North & the Midlands

Value is now ‘underpinned’. Shareholders’ funds are some 270p per share. The group has 21% of its assets valued at >£1m and only 23% valued at <£0.5m

Debt is falling. It was 8.1x EBITDA in FY13, 8.0x in FY14 and 7.8x in the year just reported

Strategic Highlights:

The group’s evolution is ‘on track’. It now looks at each pub & allocates it into one of eight categories. It then executes on any change in status (including disposal)

By May 2016 ETI will have dealt with some 200+ MRO trigger events & will be able to report more knowledgably on how tenants and lessees are reacting

The group still believes that a large number of lessees will remain tied. Commercial leases carry with them a whole new level of risk

Investment is likely to fall, the group is offering no new long leases & the number of managed and franchised units is bound to rise

The group is using surplus space & will take back some leases to manage units itself when these come to the end of their leases

The group’s Craft Union managed pubs are averaging £7k per week (this should rise), Bermondsey pubs average £11k and the Hippo pubs(only one open) should achieve c£22k

Langton Comment: Enterprise has reassured that it has moved into the execution phase of its transition and has shown that this need not be associated with a sharp drop in profits.

The group insists that it has a ‘clear line of site’ in terms of its transformation. It will release KPIs alongside its half year and full year numbers and it is to host a capital markets day in May next year.

Trading is a shade better. The Rugby World Cup will have boosted revenues in October, real incomes are rising and the group’s less-good pubs have gone.

Enterprise promises us more of the same alongside a continued evolution towards a multi-strategy pub company in which it concedes that one size will not fit all.

Making money from tenanted and leased pubs should still be possible but the ‘spreadsheet approach’ of yesteryear may be gone for good.

Fortunately, Enterprise has a portfolio of good pubs and, though it may have to work harder for its money, its future appears secure – in which case its share price is perhaps a shade too low.

The News:

Pub, Restaurant & Drinks Producer News:

• Restaurant Group D&D London is closing in on a £100m IPO and could float as early as next month.

• Risk Capital buys majority stake in Brighton coffee chain Small Batch Coffee. Existing management to remain in place reports Propel

• Emma Howe has been appointed as sales director of the private events arm of London Union, parent company of Street Feast, writes M&C. Ms Howe previously worked at Novus Leisure and has been tasked with making London Union spaces accessible for larger corporate bookings and other events such as Christmas parties.

• Mexican restaurant chain Chilango has received a one-off investment of £250,000 on its Crowdcube page, taking its total funds raised on the platform to £1.8m. Chilango currently has ten sites.

• New IWSR figures indicate the global spirits market is set to grow at a compound annual growth rate of just 0.6% to 3.2 billion nine-litre cases by 2020. This is compared to the previous five-year CAGR of 3.6%. The slowdown is being blamed on the faster-than-expected recovery of the spirits market following the global recession. China and India are set to drive the more modest performance going forward.

• The Office for National Statistics says that beer, wines and spirits all contributed to a 0.1% fall in CPI in October. Tim Wilson, Managing Director of WDR, commented : ‘The pressure exerted by the discounters is being felt across all categories within beers, wines and spirits. Wine in particular shows a big fall compared to last year, and this time there is no change in wine duty to impact the results as wine duty was unchanged in the March 2015 Budget. Perhaps British drinkers can look forward to some good celebrations at Christmas with average incomes rising significantly faster than consumer inflation.’

• UK food and drinks supplier Princes is investing £15m in redeveloping and expanding its Aqua Pure plant in Cumbria. Bottled water is currently the UK’s fastest growing soft drink category and fourth largest by value.

• Aldi and Lidl now own a combined 10% of the British grocery market and attracted one million more shoppers in the last 12 weeks than the same period last year. Figures from Kantar WorldPanel show Lidl’s market share reached a new high of 4.4%, increasing by 0.7% on last year thanks to a sales growth of 19%. Aldi grew sales by 16.5%, keeping its market share at 5.6% for the fifth consecutive month. Meanwhile, Sainsbury’s has overtaken struggling Asda by 0.2% in the three months to 8 November as the UK’s second largest supermarket.

• US retail giant Walmart has posted net profit of $3.3bn for the three months to the end of October, down from $3.7bn a year earlier. Total revenue fell 1.3% in its third quarter to $117bn, while Asda LfL sales tumbled a further 4.5% having fallen 4.7% in the previous quarter, as it continues to crumble under pressure from both the discounters and Sainsbury’s.

Travel & Hotels:

• Police in Tunisia are reported to have foiled a new beach terror plot. Such news (from the BBC) will do little to encourage tourism

• InterContinental Hotels Group has signed the Hotel Indigo London in Aldgate, set to open under a franchise agreement with Meadow Partners and Roquebrook in 2017. The 207-room site is located in the heart of a major residential and commercial development project taking shape along Leman Street and Aldgate East that is transforming the character of the area.

• Aldgate: The hotel will be well connected and close to the City Centre and Canary Wharf, as well as trendy  locations such as Brick Lane, Spitalfields Market and Southbank. The Mayor of London’s cycle superhighway is being built right through the neighbourhood and current building work is making space for more grassy spaces and trees by 2017 as demand for flats for City professionals and students rises.

• Aldgate: Art galleries and trendy independent restaurants have started to pop up along the side streets and new bars and coffee shops such as the Discount Suit Company continue to give Aldgate a buzz. Simon Blakeborough, Director of Roquebrook said: “This area is so alive and is a melting pot of cultures, cuisines art and architecture, making it the perfect neighbourhood for a Hotel Indigo hotel. It really is a fantastic place to visit whether you are travelling for business or leisure.

• Russia’s security officials have found ‘traces of foreign explosives’ on debris from the Airbus that exploded over the Sinai in Egypt. All 224 people on board died, most of whom were Russian tourists heading back to their homes. An Islamic State affiliate has claimed responsibility for the act of terror.

• Low-cost carrier Norwegian has been granted a UK operating licence which could allow it to add flights to Asia, South America and South Africa. The CEO of the airline, which already operates services from the UK to the US, commented: ‘The British market continues to play a major role in Norwegian’s growth. Securing a UK Operating License is great news and an important step to get a stronger foothold in the UK as we plan for further expansion, new routes and new jobs.’

• Airbnb has teamed up with American Express in a deal to allow Amex customers to use loyalty points to book with the accommodation platform. Leslie Berland, Amex’s executive vice president for global marketing, said: ‘With this partnership, we’re creating a frictionless and valuable way for them to take advantage of everything Airbnb has to offer. Through our technology, we’re bringing to life our unique assets on Airbnb.’

Finance & Markets:

• UK inflation remained at -0.1% in October amid reports that the global economy has been weakening. October marked the first time the Consumer Prices Index has fallen on an annual basis for two months in a row since the index was created in 1997 and is the ninth month in a row that the measure has remained close to zero.

• US consumer prices increased by 0.2% in October following two months of decline, with prices being pushed up by increasing electricity and petrol costs.

• House prices rose by 6.1% in the year to September to an average of £286,000, up from 5.5% in August and 5.2% in July, according to the ONS. However, the rise is still much lower than a year previously, when prices were rising by more than 12%.

• World markets: UK and Europe up yesterday, US higher in later trade + Far East mostly higher Weds morning

• Oil price broadly stable at around $44 per barrel. Was <$43.60 at some points yesterday.

• Greece secures outline deal with Eurozone to gain access to latest tranche of financial support amounting to c€2bn.

Retail Roundup from Nick Bubb:

Scs Group: Ahead of its AGM this afternoon, ScS has flagged that it “continues to trade in line with expectations and has had a good start to the current financial year” and that LFL order intake (including House of Fraser) has progressed as expected, with the 16 weeks ended 14 November seeing an increase of 9%, “a pleasing performance against particularly strong comparatives during Autumn”. That is, however, a slow-down on the growth of 13.3% seen in the first 9 weeks of the financial year, to 19 September, as reported with the final results on 29 Sept. Next week, ScS has chosen “Black Friday” to take analysts to look at its stores at Lakeside.

Kantar and Nielsen Watch:
As it happens, the latest monthly Grocery market share figures (for the 4 weeks and the 12 weeks to Nov 8th) from Kantar and Nielsen both came out yesterday morning at 8am. Kantar focused on the news that the combined market share of Aldi and Lidl has reached 10% for the first time, over a rolling 12 week period, but Nielsen concentrated on the fact that despite the continuing rise of the discounters the supermarket industry experienced its biggest year-on-year fall in the value of sales for over a year (during the four weeks ending 7 November, overall till sales dropped by 1.2% against last year, implying -4% LFL for the “Big 4”). In terms of the last 4 weeks, the good news from Kantar was that Sainsbury strengthened to achieve creditable +1.5% gross sales, but Tesco weakened to record -3.8%, Asda slipped back to -3.7% and Morrison’s slumped to
-4.5%…”Premium” operators did well again, according to Kantar, with M&S reported to be up 4.3% gross, but we would take the +4.8% reported for Waitrose with a pinch of salt (given the average of only about +3% reported by Waitrose themselves for those 4 weeks).

John Lewis Sales Watch: We have been asked how the Paris terrorist attacks affected trade on the High Street on Saturday and it will certainly be interesting to see how that great High Street bellwether John Lewis did last week. But it will be hard to untangle any impact on consumer confidence from the fact that the weather was unhelpfully warm and wet on Saturday and that many consumers are now waiting for “Black Friday” discounts…Fortunately, the comp last week was relatively soft, so not too much damage is likely to have been done, in terms of trading momentum, and we would pencil in flat LFL sales overall (ex the impact of the new Birmingham store etc), ahead of Friday morning’s official figures for w/e Nov 14th. Nick Bubb – nicholas_bubb@hotmail.com

Tuesday 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:

Enterprise Inns:

• See flash note above.

• Enterprise managed to reassure that it is moving from the strategic thinking stage (post MRO) into execution.

• Fortunately for the group and for its shareholders, it has a portfolio of, for the most part, very good pubs and has a number of options available.

• The group has a future as well as a past and, that being the case, a PER of c5x looks a little too low.

(Lack of) inflation:

• UK CPI remained at minus 0.1% in October per the Office for National Statistics

• The news may dampen interest rate rise chatter

• B of England had previously said that the economy was weakening and such (lack of) inflation news is consistent with this view

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

• Interesting to see shares in Restaurant Group have gone precisely nowhere over the last 2yrs.

• Sterling up sharply against Euro. Will benefit holiday companies & holidaymakers, hurt exporters etc. Sterling stable v US$.

• No change re commodities, almost all pants.

• Defensive day on the markets yesterday but reversed today. Leisure travel badly hit Monday + only partially recovered today.