A Day in the Life:

Follow us on Twitter at either @langtoncapital or @brumbymark.

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

So it’s forecast to snow tomorrow and Sunday up here in York.

And our boiler has packed up meaning that I’ve been prowling around the garden in the dark looking for logs to burn on the various fires that have been gathering cobwebs since the last time they were needed.

Which was when the boiler packed up at around this time last year suggesting that there may be a bit of a pattern developing here. Pictures of a distraught Basil Fawlty beating a broken-down car with the branch of a tree come to mind but I’m more sensible than that. I’ll give the thing a yellow card alongside a stern talking to, that should do the trick.

Anyway, a computer glitch at Campaign Monitor, the company that facilitates the sending out of this email, meant that there were ‘abnormally high bounce rates’ in emails sent out on 12 November. If you didn’t get an email that day, it’s available on request. On to the news:

The News:

Pub, Restaurant & Drinks Producer News:

• Fuller’s H1 numbers. Revenues +10% at £177.7m, LfL sales +5.6% in managed houses, EBITDA +8% at £33.3m.

• FSTA H1: Says has seen ‘a strong first half from a great team of people’. EPS +11% at 30.74p, DPS +8% at 6.9p.

• FSTA H1: LfL growth is ‘against strong comparatives from last year’. Has seen a ‘good performance from Tenanted Inns’ LfL profits +3%.

• FSTA H1: Has seen ‘a solid start for The Fuller’s Beer Company with total beer and cider volumes up by 1%’.

• FSTA H1: Group bought 2 new freeholds + bought in 3 leases. Re beer, it will ‘maintain clear differentiation over the competition

• FSTA H1: Current trading. Managed LfLs +5.8% in first 33wks (therefore strong Rugby World Cup) + tenanted +4% at w33. CEO Simon Emeny reports ‘we have had a strong first half with all areas of the business in growth, demonstrating the clear trading momentum underway in the business. It is particularly rewarding, coming on the back of a good prior year.’

• Fuller’s CEO Simon Emeny continues ‘during the last six months, our Managed Pubs and Hotels have had excellent growth, the Tenanted Division has put in another good performance and the Beer Company has also made progress.’ He says ‘the second half of the year has started well, with a number of our pubs – particularly in West London – benefitting from a boost during the Rugby World Cup’ and concludes ‘in short, having completed the first half of this financial year, I look forward to the rest of the year with optimism.’

• Downing has entered new JV, Apollo Pubs, with operator Redcomb Group. Redcomb currently operates 13 sites across the Sout of England. Redcomb says ‘we are delighted to be working with Downing, who have a real understanding of, and passion for, the sector. This deal will further enhance our growth strategy as we continue to build a portfolio of high quality outlets.’

• Various beer + pub industry bodies incl. BBPA, ALMR, SIBA, join forces in order to call for fairer deal for pubs in Autumn Statement. They are calling for a freezing of the business rates multiplier and the extension of small business rates relief for a further year. BBPA CEO Brigid Simmonds comments ‘more action from the Government in the Autumn Statement is needed, as pubs are hugely overburdened’ and ALMR CEO Kate Nicholls says ‘the businesses that are driving growth across the UK’s high streets are bearing a disproportionate burden. The Government must act decisively to ensure a fair and flexible system that treats all businesses equally in the way they are assessed and encourages success.’

• Deltic has seen ‘unprecedented sales for its latest venture, Unit 7 in Basildon, which opened last weekend’ post a £7.5m refurb. CEO Peter Marks reports ‘our annual investment programme has delivered some great results. With investments in key locations including Exeter, Oxford and, Windsor, we have struck on a winning formula that combines well-invested sites with an improved customer offer and market leading entertainment, which is delivering consistent results.’

• ALMR has welcomed news that mandatory charging of fees for restaurant inspections will not be implemented EU-wide. CEO Kate Nicholls commented ‘this is a fantastic win for the hospitality industry both in the UK and in Europe. The possibility of mandatory fees being rolled out across the continent left businesses facing the possibility of shouldering an even greater financial burden, and has been averted thanks to concentrated lobbying by the ALMR and our partners in HOTREC.’ She continues ‘it is absolutely correct that the decision to introduce such a fee should only be made by governments at a national level. The focus of our attention will now turn to the UK Government and we will be working closely with them to ensure that the UK’s hospitality businesses are not faced with an additional cost burden.’

• The co-founder of Small Batch Coffee Company has said that he sold his shares to Luke Johnson’s Capital Risk Partners for £3m.

• Chapel Down is reported to be trebling its target fund raise to £3.65m after hitting £1m in less than 2mths

• Rugby World Cup thought to be partly responsible for 21% increase in spending on takeaway meals in October

• Food deflation far from over, it would appear. Retail sales figures show drop in food sales, largest since May 2014.

• JLL reports F+B operators have doubled the amount of space they have in shopping centres from 7% to 15% over last 10yrs

Travel & Hotels:

• WTM Global Travel Trends Report suggests that changes in holiday patterns are being driven by US companies trialling “unlimited” holidays as well as an increase in global GDP.

• Thomas Cook is reported to be looking to acquire new sites for retail stores in admission that the medium is not dead. Group would like to have a balanced approach to retailing as some customers would still appreciate a face-to-face chat.

• GBTA reports that generational change + mobile technology are changing consumer travel habits, likely permanently. It says expense management systems have changed in the B2B arena and says that WIFI now ranks highest when business travellers are asked ‘what one thing all companies should offer their travellers’? Somewhat counter-intuitively, the study showed that older travellers are “significantly” more likely to want to access their travel itinerary or expenses whilst on the move.

• Paris visitor numbers said to be down. Survey by Synhorcat, the hotel + restaurant operators’ union, suggested sales down 44% at cafes. The survey suggested that hotels have seen a 57% fall in trade. The FT quotes Anna Zabrodzka, an economist at Moody’s Analytics, as saying that the scale of the fallout longer term was “anyone’s guess right now”.

Other Leisure:

• Dating website owner Match Group has priced its forthcoming IPO at US$12 per share.

Finance & Markets:

• UK mortgage lending rose to £21.8bn in Oct, up 20% y-o-y to the highest Oct number since 2008 per CML.

• World markets: UK + Europe up Thursday but US down later. Far East markets mostly down in Friday trade.

• Oil price little changed at around $44.30 per barrel.

• UK retail sales rose by a slower than expected 3.8% in October after a revised rise of 6.2% in September

Leisure – The Week Ahead

M&B and Marston’s: In Pubs we see Mitchell’s and Butler’s full year numbers on Tuesday the 24th, with Marston’s full year on Thursday the 26th.   Marston’s has already provided a full year trading update and won’t be updating on trading for the seven weeks since the year end.  At the full year Marston’s saw like for likes up 1.8%, with like for likes for the last 11 weeks of the year up 2.2%.  Marston’s share price has remained steady over the past year or so, however M&B has pulled back from around 450p to the 350p range following the departure of Alistair Darby earlier this year.

Compass full year is also on Tuesday. Organic revenue was up 5.5% for the nine months to 30 June, and 5.1% for Q3.  Europe and Japan had been underperforming, with revenue for the nine months up 1.2%, but improved on the quarter to 1.8% growth, while North America saw revenues up 7.8% for the year but only up 7% for Q3, and Emerging saw 7.4% for the nine months falling to 6.8%. The group has been buying back its shares and currently holds 12.7m of the group’s 1.6bn shared issued in treasury and has almost completed its £500m share buyback programme announced in 2013.

Thomas Cook full year on Wednesday, with SSP Group’s full year on Thursday.  Thomas Cook shares have tumbled, falling from c120p to c100p following the terror incidents in both Paris and Sinai, though SSP Group’s shares have remained relatively stable.  Thomas Cook has plenty to shoot at following its tie up with Fosun, though it would be fair to assume that travel numbers will be impacted by terror fears.  As such, given SSP Group’s estate is primarily travel hub oriented it’s fair to assume their numbers will be affected in the short term, but the group will be buoyed by its grand expansion plans on a global scale.

Patisserie Holdings has full year numbers on Friday.  The group’s shares have been strong since its listing a little over a year ago, since which the shares have risen from 170p to over 330p.   The group has previously announced plans to expand to c400 sites with 20 sites targeted for opening this year.

Cineworld has its Q3 on Tuesday.  The shares fell on at the end of last month, when a broker note pointed out tough comps going forward.  Not wanting to be overly critical it’s a little difficult to see how people could think that the cinema industry could have one of the best years in recent history and not create tough comps for itself going forward.   The group’s Eastern European expansion looks to be going well, though the group’s ownership structure may give some investors pause. Will Brumby – will.brumby@langtoncapital.co.uk

Retail Roundup from Nick Bubb:

Poundland:
Yesterday’s interim results from Poundland clearly contained a few negative issues, but we certainly weren’t expecting the share price to collapse by 20%, so it’s worth looking it what exactly spooked the market so much. As far as we can tell, the fall in underlying profit forecasts for the current year was “only” about 5%, but it is a moot point how the City is looking at the accounting policies on the 99p Stores acquisition: throw in the big trading losses of 99p Stores in H2 and the store conversion costs and the profit hit is much bigger than 5%…And Poundland’s bullish talk about “We’re confident of achieving at least £25m of incremental EBITDA from the acquisition” was clearly undermined by the revelation that the business was in a mess when they took it over, with acute stock shortages, and that “below the
line” conversion costs will amount to £25m as well. However, investors were also uneasy about the warning of extra gross margin pressure in the underlying business in H2 because of FX movement, as well as the warning about a soft start to Q3 trading. The ebullient CEO, Jim McCarthy, may well be right that “the shape” of Xmas trading will be different this year, because of “Black Friday” etc, and things will be fine in the end, but at this stage investors could be forgiven for concluding that the growth of the multi-price discounters like B&M and Home Bargains is putting some pressure on the business model…and de-rating the shares accordingly.

Planet ONS Watch:
Life on the infamous Planet ONS turned out to be quite subdued last month, in line with the BRC-KPMG Retail Sales survey, but the ONS Retail Sales figures for October were not as bad as our friends at Capital Economics had feared, with the City consensus forecast of a 0.6% drop in “month-on-month, seasonally adjusted sales volume” turning out to be uncannily accurate.  In terms of the movement in the sales value figures, not seasonally adjusted and ex-petrol, which is obviously the sensible thing to focus on, September was revised down slightly from +3.4% to +3.2% (with the improbably big 5.8% growth for “Small Retailers” revised down to 4.4%, versus the “Large Retailers” growth of 2.9%) and October was up by just 0.8% overall. In terms of the 3 big sub-sectors, Predominantly Food Retailers were down by 1.6% in October, Predominantly
Non-Food Retailers were up by 1.4% and Non-Store Retailers were up by 10.6%.

BDO High Street Sales Tracker: this weekly High Street sales index of medium-sized Non-Food chains assembled by the accountants BDO is a useful guide to underlying Fashion store trading momentum, even though it still excludes Online sales. Fashion LFL sales have been consistently poor in recent weeks, despite weak comps, and BDO has reported today that last week, w/e Nov 15th, saw poor trading again, with overall Fashion store LFL sales slumping 7.1% (despite the fact that the same week last year saw Fashion LFL sales down by 4.4%). BDO blamed the wet weather at the weekend and consumers waiting for “Black Friday”…Total store LFL sales were down by 5.8% (including some Lifestyle and Homewares retailers) and overall Non-Store/Online sales were again disappointing, up by 13.8%.

Trade Press (1):
The front page story of “Retail Week” magazine today is headlined “Black Friday showdown to polarise retail fortunes”, flagging that retailer performance is expected to vary dramatically over Black Friday (which is set to be the biggest yet and generate about £1bn in revenues), with Amazon, Currys, Asos and John Lewis likely to do best according to Panmure Gordon and AO.com, Game and Argos likely to lose out. RW also highlights that Ikea is in discussions to pilot one of its ‘order-and-collection point’ branches in the current BHS building on Oxford Street and that Majestic Wine boss Rowan Gormley has shrugged off the impact of Aldi’s looming Online wine shop, claiming that it’s not a “new threat”. RW also has a feature on Mountain Warehouse founder Mark Neale’s thinking behind his new women’s
‘athleisure’-wear brand and retail chain Zakti. And the Editor-in-Chief looks at the rivalry between B&M and Poundland in his column and thunders that “B&M earns its place in the battle of the discounters”.

Trade Press (2):
The main stories in Drapers magazine today are that the Polish fashion retailer Reserved is unlikely to sublet the front of BHS’s Oxford Street flagship, the value clothing retailer Pep&Co is on track to serve its millionth customer in early December (just five months after opening its first store, with trading ahead of expectations), Jigsaw has unveiled a defiant manifesto setting out its full-price strategy, Oasis has opened a 3,200 sq ft flagship store on Tottenham Court Walk in central London, the Jacques Vert group has predicted it will be back in the black by the end of 2016, the lifestyle brand Joules opened the doors of its 100th store this week (in Dublin) and Marks & Spencer’s new Non-Food boss Steve Rowe, has said his first priority is to improve the availability of its fashion collections (including key “hero pieces”) across its UK
store network. In her column, the new Editor reflects on the importance of “Retail theatre” and thunders that “today’s smarter shoppers need entertaining”. The feature interview is with White Stuff CEO Jeremy Seigal and Drapers also have their Footwear High Street “Hit or Miss” fashion survey: more on this on Monday.

News Flow Next Week: Another busy week kicks off with the Bonmarche interims on Monday (with the GameStop Q3 out in the US also worthy of note). Tuesday then brings the AO.com interims, the Pets at Home interims, the Kingfisher Q3 and the Signet Q3. Wednesday is the day of the Chancellor’s Autumn Statement. Thursday evening is the prestigious “Drapers” Awards and then Friday is…“Black Friday” (and the day of the ScS trip to Lakeside for analysts). And the Arcadia final results from Philip Green are also due at some point…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:

Business confidence, business cycles etc.:

• Business confidence matters because it influences capex decisions.

• And those decisions in turn have an impact on employment levels, overtime payments and the like.

• And the ICAEW suggests that confidence levels are falling such that they are now at two year lows.

• A glance at the report – here – shows that business confidence is indeed at a 2yr low but also confirms that it is 1) in positive territory and 2) stands at an altogether higher level than that seen during the recession.

• The downturn in confidence is thus more likely indicative of a slowing in the economy, a pause for breath rather than a harbinger of something worse to come

• Nonetheless the downturn does serve to remind us that, if we were to return to what had previously been ‘normal’ business cycles of perhaps 8yrs or so, we are nearer the next ‘recession’ than we are the last

Selling out of restaurant operations:

• Nando’s owner Capricorn Ventures is a smart cookie.

• Usually at least and now we hear that it is to sell its GBK business.

• We could take this as a signal that the restaurant market was getting a little overheated but, as the owner is keeping a hold of its much bigger Nando’s operation, it may be more a comment on GBK specifically.

• Maybe Capricorn sees burgers as fit to burst?

• Or maybe it is tacitly conceding that it isn’t getting synergy benefits from its ownership of a second restaurant chain and, perhaps, that its purchase of Clapham House back in 2010 was not its smartest move.

Evolution of the consumer offer:

• As mentioned on a number of occasions, we believe that the only constant is change.

• And here we would lump the suggestion made by the IFS (see this morning’s email) that young people could actually be poorer than their parents at every stage of their lives.

• If true, and the cost of everything from housing through car insurance to medical costs and later retirement would suggest that it is, this is a real social issue.

• But from the financial standpoint, it does perhaps suggest that operators may be able to make more money going forward from the grey market than the youth market

• Of course units cannot be flipped over instantly from serving roasts to pensioners on a Sunday lunchtime to serving tequilas to their grandchildren 10hrs earlier in the morning (or vice versa) but capex plans for the multi-brand groups can be tweaked

• Capex can be diverted and, though youth-centric units may have more of a buzz, they may not be as busy going forwards as they would have been in the past

• Interesting also to see in Nick Bubb’s comments this morning (see earlier email) that The Times notes comments by Network Rail suggesting that millions of people now go to main railway stations not to travel, but to shop, eat & meet friends.

• Having passed through King’s Cross perhaps 1,000 times in the last decade, I can believe that’s true. Things have certainly changed over the last few years.

• However, wouldn’t it be better to have a life?

The run up to Christmas:

• Interesting to see Poundland (shares down 20% on another disappointment) saying ‘we have seen highly volatile trading conditions so far in the third quarter.’

• It adds ‘the quarter’s performance therefore depends more than ever upon the last six weeks’ trading towards Christmas.’

• Many licensed leisure operators will know the feeling well.

Random information, hopefully not all of it useless:

• Sterling up sharply against the Euro. Tourists in resort should notice the benefit immediately.

• Commodities little change. All weak except El Nino products. We’re all looking at Brent but, for the record, West Texas Intermediate fell briefly below $40 yesterday.

• Enterprise Inns’ share bounced for a second day yesterday.

• Bit of a dead cat going on with bounces in shares such as Pearson and Sainsbury.

• Travel stocks weak for obvious reasons.

• Dart Group. Great numbers (H1) but don’t you find the year end (March) a little odd? The travel side of the business makes >100% of its profits in H1 and losses in H2. Seems somehow to open the group up to a feeling of disappointment. TUI and TCG both have September year ends.

• Interest rates. Judging by the (lack of) reaction of the US$ and world equity markets to the Fed comments yesterday, it would seem as though a December interest rate rise is now baked into expectations