A Day in the Life:

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

My email packed up the other day.

Nothing was getting in, nothing was getting out and that was a problem but, on digging a little, the system helped me out by saying that my mailbox was full.

Now that was a bit odd because, though we get the odd email coming in replete with glossy photos showing beaming CEOs holding sparkling pints of beer and taking up 10mb or 12mb of space in the process, we try to store them away from the online part of our email system and we don’t tend to build up that big a mailbox in the normal course of business so I set about digging to find what had gone on.

And it may be a little therapeutic, dumping emails, getting the file size down but it wasn’t long before I found the culprit as one large leisure company that had previously had the foresight to set up an RSS feed that we take advantage of, had sent us the same email 45,100 times.

This email taken alone was admittedly not terribly large but, in a great enough quantity, even a bunch of ants will outweigh an elephant and my system had fallen over as a result of this constant bombardment. I mean I’ve heard of repeating your point to emphasise it but surely there should be limits? On to the news:

The News:

Pub, Restaurant & Drinks Producer News:

• House of Commons health select committee is likely to back plans to tax fizzy drinks says Sunday Express. In addition to the tax, the committee may call for a ban on BOGOF deals. Ministers to date have said that they have no plans to introduce a tax.

• A new report from Oxford Economics for the BBPA shows that UK pubs pay a total tax bill of some £7.3bn, or £140,000 for every pub. The report finds that pubs are paying the second-highest business rates bill of 67 sectors, with each site on average paying 34% of turnover and total costs coming in at £800m larger than the gambling and betting sector. VAT, excise duty and business rates are the main burdens, the report finds.

• BBPA Chief Executive Brigid Simmonds commented: ‘This new report sets out the stark reality of the disproportionate tax burden bearing down on pubs. Without action to reduce this burden, more of our much loved community pubs will be under threat. The Chancellor has taken action on beer duty, and to relieve the burden of business rates on pubs in his previous two Autumn Statements, but there is no doubt that more relief and reform is needed.’

• Having recently introduced two Bella Italia restaurants recently, Casual Dining Group has told M&C that another three are set to open before Christmas. Group property director at CDG, Phil Derbyshire, said: ‘We’ve dramatically accelerated the number of openings in 2015 and have a strong pipeline of sites secured for 2016/17 across our three growth brands Bella Italia, Las Iguanas, and Café Rouge. With such a wide repertoire of brands and broad location profiles, we are seeing an increasing number of multi-brand opportunities in several of the large UK leisure schemes.’

• Part-owned by Tesco coffee shop chain Harris + Hoole has managed to lose £43.4m over the last couple of years reports Propel. It has managed to say that the majority of its shops are now in profit. It says ‘the business opened 22 new shops and closed the six shops previously announced in September 2014, taking the total open at the end of the period to 45. In the second week of March, Harris + Hoole opened the first speciality coffee shop in a UK airport at Stansted, which has been exceeding expectations since it opened. The operating loss of £21.6m reflects significant impairment taken on a number of properties and other assets of £9.8m. As the business exited the year and into 2015-2016, the majority of shops have turned to profit after the early life-cycle of opening in the formative years of the business. Management focus on driving sales growth coupled with a tighter
control on shop costs have driven this, as well as a marked decrease in the time from opening to profitability for the shops opened in the 53 weeks to 1 March 2015.’ Tesco has loaned Harris + Hoole £48m to date.

• Meatliquor has become one of the first operators to sign up for a site at shipping-container leisure space Boxpark Croydon. Meatliquor will be joined by other up-and-coming operators including Bukowski and Bang Bang Vietnamese, with other brands such as The Breakfast Club and Franco Manca considering the move.

• Bacon and sausage sales have fallen 10% following a report from the World Health Organization which links processed meat to cancer.

• Some 93.9% of the more than 18,000 consumers interviewed online by M&C Allegra eat out, with breakfast, lunch and dinner trade all improving. Breakfast participation rose from 49.2% in Q3 2014 to 51.2% and dinner grew from 84.4% to 86.6%, while customers are now making 4.6 lunch visits per month, up 8% from Q3 2014.

• Cognac House Camus has announced a UK distribution agreement with Scotch whisky distillers White & Mackay.

• With food and drink businesses proving popular on Crowdcube since its launch in 2011, Mexican food chain Chilango has been one of the platform’s biggest beneficiaries. Crowdcube founder Luke Lang said that Chilango’s efforts have been helped by the fact that it had a strong brand presence before it looked to raise money on the crowdfunding platform.

• Ethically-sourced Brighton chicken restaurant, Hen, has launched a crowdfunding campaign asking for £100,000 to help open six London sites. The ‘posh chicken’ concept is also offering ‘like-minded entrepreneurs the ability to open their own Hens across the country’ and has its sights set on 15 franchised sites by 2020. Founder Philip Ilic added that ‘posh’ chicken is on the cusp of a boom similar to the rise of the gourmet burger.

• Shares in Chipotle have fallen more than 12% after US health authorities reported 45 more cases of E. coli, with 43 of those people having recently dined at Chipotle. The cases were in California, Minnesota, New York and Ohio. Earlier this month, the chain temporarily closed 43 outlets in and around Washington and Oregon states. The Centre for Disease Control said: ‘The epidemiologic evidence available at this time suggests that a common meal item or ingredient served at Chipotle Mexican Grill restaurants in several states is a likely source of this outbreak’.

• PE firms are considering £1bn takeover bids for Argos and Homebase owner, Home Retail, following a slump in the group’s share price.

Travel & Hotels:

• TTG reports Hays boss John Hays as saying issues in Tunisia + Egypt will lead to price rises in other destinations.

• Demand soars away from problem destinations. TTG reports summer 2016 bookings +42% in Portugal +34% in Canaries and +25% for Balearics. John Hays says ‘those places are benefiting but it is disruptive to the industry generally. If you’re a hotelier in Spain and your demand is up 30%, your prices will follow that.’

• ABTA + UKinbound have called on HMG to provide greater funding to promote tourism into England. They call for a regional emphasis rather than just a further attempt to push London. The letter says ‘whilst all the home nations benefit from marketing afforded by GREAT and VisitBritain, both VisitWales and VisitScotland supplement this activity with dedicated tourism budgets of over £20m and £54m respectively.’

• American investment giant KKR has reportedly bid for safari holiday operator Audley Travel.

Finance & Markets:

• Greece has completed all the reforms in the first package of measures agreed with euro zone creditors and will soon receive the next tranche of loans. The head of euro zone finance ministers (EWG) Jeroen Dijsselbloem said on Saturday: ‘On the basis of a final compliance notice… the EWG agreed that the Greek authorities have now completed the first set of milestones and the financial sector measures that are essential for a successful recapitalisation process… The agreement paves the way for the formal approval by the ESM Board of Directors on Monday 23 November of disbursing the 2 billion euro sub-tranche linked to the first set of milestones.’

• The RAC has said there’s a ‘very good chance’ petrol prices could fall to £1 per litre or less, with the average petrol price currently £1.07 per litre. Some supermarkets are already selling petrol for as little as £1.03 per litre and a recent 2p drop in wholesale fuel prices could be passed on to consumers within weeks.

• Nationwide has reported a record amount of mortgage lending in the half year to 30 September ad a 34% increase in profit. Lending was up 14% to £14.9bn and profit grew to £802m, although the group warned to expect ‘downward pressure’ on its profit margins in its H2 due to ‘robust’ competition.

• Euro recession may become permanent says left-of-centre think tank IPPR. It is ‘deeply alarmed’ by 10% unemployment rate across Europe

• Analysts at Moody’s have reported that a Brexit may not necessarily imply a reduction in UK’s credit rating per Sunday Telegraph

• World markets: UK and Europe higher on Friday, US up in later trade. Far East mostly up in Mon trading

• Oil price down a little further at around $44.20 per barrel

Langton Licensed Retail Index – Major Movers

The LRI again underperformed the wider market last week, rising 1.71% versus a 3.26% gain in the FTSE all-share as travel and leisure were picked out as the industries most likely to be affected by terrorism fears.

The big pubcos had a better week than the rest of the LRI, ending up more or less in line with the wider market, with M&B up 3.72%, Greene King up 3.59% and Marston’s up 3.9%.  JDW trailed somewhat as investor sentiment is still subdued due to the poor margins announced at the group’s Q1 trading update.

Young & Co was down 0.81% though Fuller’s was up 5.89% following its full year results last week.  The groups’ full year numbers will not have included the boost that London pubs look to have received from the Rugby World Cup this year.

Cineworld shares were down 0.37% ahead of the group’s Q3 trading update tomorrow. The group’s shares have taken a hit recently following broker suggestions that the film schedule, which was particularly good this year, could mean tough comps going forward, though this probably shouldn’t come as much of a surprise, now that the Hunger Games and Hobbit franchises have come to an end.

Merlin Entertainment was up 3.91% last week.  The group’s shares have been weak recently following the Alton Towers disaster in June, but have since recovered to around 410p.

SSP Group’s shares were up 0.61% and Whitbread was up 0.81%, perhaps as a result of the groups’ exposure to the travel segment, which will likely have been affected by last weekend’s terrorism in Paris. Will Brumby – will.brumby@langtoncapital.co.uk

Langton Food Retail Index – The Grocer’s Dozen

It was a busy week for food retailers, with new Kantar WorldPanel data and H1 results from wine-retailer Majestic and discounters Poundland and B&M Value Retail. Looking forward, Black Friday at the end of this week is set to be bigger than last year’s and the next few days will be crunch time for a number of retailers looking to capitalise on the once-in-a-year opportunity.

Grocers

Kantar data for the twelve weeks to 8 November was the big news for the grocers showed discounters Aldi and Lidl racing past a combined British grocery market share of 10% for the first time ever. Meanwhile, Sainsbury’s overtook struggling Asda by 0.2% as the UK’s second largest supermarket. Its shares recouped some of the preceding week’s double-digit losses, up by 5.21% to 254.78p.

The grocer remains one of the strongest in the UK and trade has arguably proven more resilient than at rivals such as Asda and Tesco. While its shares may represent good value, trading on a forward PER of 11.2 with a dividend yield of 4.2%, food deflation looks set to be the norm for the foreseeable future and competition is as intense as ever.

Specialty/Wholesale

Majestic Wines reported its H1 numbers for the 26 weeks to 28 September on Monday. First half adjusted PBT (ex-charges relating to the Naked Wines acquisition) fell by 1% to £8.4m. The group’s profit before tax has halved to £4.3m ‘as a result of non-cash charges relating to the Naked Wines acquisition, interest costs and exceptional items’. Underlying group revenue grew 6% with like-for-likes up 2.3%.

MJW shares rose 10% to 341p as investors reacted supportively to management’s ‘simple’ turnaround strategy but they are not cheap, trading at 18.7 times forecast earnings. The wine retailer faces a long-term threat from potential supermarket price reductions and there is also the risk of larger online players such as Amazon entering the fray and driving down margins.

Discounters

Poundland shares tumbled 19.02% to 225.7p on the back of its H1 results for the six months to 27 September, with LfL sales down 2.8% in the period and underlying EBITDA falling 18.5% to £16.8m. The group is accelerating its integration of the newly-acquired 99p Stores estate on the back of the poor numbers and has raised its UK & Ireland store target figure by 40% to 1,400 despite the decline in performance. The introduction of the National Living Wage has also hurt the company, which is forecasting a £4.3m increase in its cost base in 2017 as a result of the increase in pay for employees.

With the latest Kantar data showing Lidl and Aldi continue to prosper in the UK and while supermarkets and other retailers are evolving their offers, Poundland runs the risks of being outmanoeuvred and outgunned. Operating costs have risen across the board, with total overheads up 6.9% to £192m in conjunction with its declining LfL figures, as the group arguably struggles to find a more permanent raison d’etre as a presence on the High Street.

Meanwhile B&M’s interims for the 26 weeks to 26 September show underlying PBT up by 25% to £66m on the back of bumper 26% sales growth. The rapidly expanding group has somehow managed to open 47 new stores in just 26 weeks thanks to ‘particularly favourable conditions currently in the retail property market’ – ie. picking up all the sites Tesco et al don’t want anymore.

B&M’s expansion has come at a cost however and the group notes ‘we have experienced below-normal service levels to stores as we approach peak trading. This will have a short-term impact on overheads and in-store product availability’.

LFL sales growth was only 1.2%, because of 1.3% cannibalisation by new stores. Overall earnings growth and return on investment remains strong and the push into Germany is going well but, trading on a forward PER of 21.8 despite already falling 3.14% to 310p last week, B&M has little room to disappoint shareholders. Jack Brumby – jack.brumby@langtoncapital.co.uk

Retail Roundup from Nick Bubb:

Saturday Press:
After a quiet day for retail news, the main feature in the Saturday papers was the report by Visa Europe that Black Friday could set a sales record of nearly £2bn and the Guardian had a big article about this, noting that this may turn out to be peak for the event in the UK and that, in passing, the Argos website crashed again on Friday. The Guardian also had a feature interview with James Daunt of Waterstones, noting that the business is on track to return to profit this year, on the back of the revival in the physical book market: James Daunt also had a go at the new Amazon bookshop in Seattle, saying “It doesn’t sound very nice…and it has the presentational sophistication of Tesco” (!). The Telegraph flagged that Darty has agreed to a share offer worth only 105p from FNAC and it also highlighted (via a large photo) that Tesco is fighting back in the
lobster price war with Lidl and Aldi. The Daily Mail noted that John Lewis is “over the moon” about seeing its first £100m sales week of the pre-Xmas run, in w/e Nov 14th. Finally, a couple of columnists, Neil Collins in the FT and Tempus in the Times, noted the problems of the delivery companies DX and UK Mail, notwithstanding the boom in Online shopping.

Sunday Press:
There were several interesting stories in the Sunday papers, with the Sunday Times leading its Business front page with the report that private equity firms are said to be eyeing £1bn takeover bids for the struggling Home Retail. Not to be outdone, the Sunday Telegraph led its Business front page with the scoop that Debenhams appears to be imposing another “Santa tax” on suppliers, having written to them asking for 2% discounts in return for faster payment, and it noted our view that this action smacks of having suffered a tough trading period. And the Mail on Sunday led its Business front page with the news that Morrisons has dropped its previous sales targets to rejig its under-water executive bonus scheme. The Sunday Telegraph also flagged that Third Point, the activist hedge fund, has become the latest fund to short Morrison’s shares. The Mail on Sunday
also flagged that Specsavers’ founders Mary and Doug Perkins have shared a £27.3m dividend (after the opticians chain posted a strong set of results for y/e Feb) and that Superdry is set to launch its new premium fashion range designed by the actor Idris Elba at its Regent Street flagship store this week. And Midas column in the Mail on Sunday looked in detail at sofa retailer ScS and said the shares are a Buy. Finally, there were plenty of previews of the difficult balancing act that the embattled Chancellor will have to achieve in the Autumn Statement on Wednesday, with the Sunday Express flagging that there is due to be an update on Business Rates reform.

Bonmarche:
Given the arrival of the first frosts of the winter over the weekend, the statement with today’s interims from the fashion retailer Bonmarche that “trading conditions during November have been challenging, due to very mild, wet weather” is bound to get a few headlines today, but the company goes on to say that “our expectations for the full year remain unchanged, provided that trading conditions normalise for the remainder of the financial year”. Underlying profits in H1 (the 26 week period ended 26 September) were only flat (before a hefty £1m exceptional provision for the fees involved with moving up to the main LSE market listing), but that is probably not too bad a performance given the tough comps and it is reassuring to see a useful improvement in Store LFL sales in Q2. The City will be more concerned to hear that in Q2 the business saw a
decline in Online sales, “due to disruption connected with the launch of the new responsive site”…

Grocer Watch:
After all the recent PR about the need for the big supermarkets to close the pricing gap against the discounters, it was embarrassing that the guest retailer in the widely followed Grocer “33” weekly supermarket pricing survey in Saturday’s magazine, Lidl, walked away with the contest: the cost of their basket was just £39.20, almost £10 and c20% cheaper than its nearest rival Asda. In the previous week, Tesco was a rare winner, but that now looks to have been a blip and they slipped right back in the rankings, with a basket costing £51.43, before a small cash-back via their “Brand Guarantee Scheme”, only £2.66 more than Waitrose. The separate Grocer “Mystery Shopper” survey on Store Service and Availability was won this week again by Sainsbury, as their 75,000 sq ft store at Shorehead in Huddersfield topped the rankings, with a score of 80 out of
100. Interestingly, the guest retailer, Lidl (via their Rusholme store in Manchester), came in ahead of Asda, Morrisons and Tesco, with a very respectable score of 70. Nick Bubb – nicholas_bubb@hotmail.com

Friday Wrap:

This was produced for distribution last Friday 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:

London, rugby etc.:

• No surprise that the Fuller’s numbers were good.

• And no surprise that the w33 numbers showed an acceleration on w26 as the latter include the Rugby World Cup.

• LfLs at the group’s managed pubs edged forward from an excellent +5.6% (w26) to an even-more excellent +5.8% (w33) suggesting that the last 7wks have been extremely strong.

• As the improvement is only of the order of 20bps, rounding differences make analysis difficult but a figure of around +6.5% is implied arithmetically by the numbers given above

• And it would appear as though London is showing few if any signs of slowing down

• This is in accord with the numbers we get from CGA Peach re the wider leisure retailing industry but it does serve to highlight the difference between pubs and casual diners in the Capital

• Pub capacity is not rising at anywhere near the rate of that for casual dining offers and, indeed, it may be falling

• For the branded casual diners, on the other hand, capacity is an issue

• New entrants and fast-growing minnows are putting on sites and this, whilst it does their own numbers a power of good, is negative for the industry as a whole – at least at the LfL level.

• Back to Fuller’s and, it has to be said, the group is going to face some very tough comps next year.

• It’s a great company & has a footprint to die for but the shares have doubled over the last 5yrs and they were hardly cheap to start with

• Shares trading on c21x this year’s earnings & c20x next

Deltic IPO?

• Deltic (was Luminar) has reported that sales at its £3m site on the Festival Leisure Park in Basildon took over £100k in its first week of trading

• The unit was ‘sold out prior to opening, on both Friday and Saturday night.’

• CEO Peter Marks reports ‘our annual investment programme has delivered some great results.’

• It’s good to hear how the company is doing and long may it continue – but we can’t help wondering whether an IPO might not be on the cards in due course?

Travel agents, route to market:

• With the world going digital, it’s interesting to see Thomas Cook opening a new store and apparently looking to acquire further new sites

• TCG’s Kathryn Darbandi, director of retail & customer experience, said the tour operator has “just started to look at” locations in towns where it does not have a presence reports Travel Weekly

• She adds ‘this is really exciting as we haven’t opened new stores for a long time. We will be looking at brand new sites. There are some towns where we don’t have a Thomas Cook or a Co-operative Travel.’

• This seems sensible as some customers will still wish to meet face to face and, without recycling the babble-speak that crept in under former CEO Harriet Green, an omni-channel approach re the route to market seems like a good idea

• Thomas Cook has jettisoned around 2,500 people from retail over the last two years but it has also ‘refreshed’ some 450 stores

Random information, hopefully not all of it useless:

• Sugar & cocoa prices getting a little carried away on the upside. Bad news for chocolate lovers everywhere. Cocoa prices (el Nino) now up nearly 20% y-o-y. Sugar prices still down 1% y-o-t but price sharply off the bottom. Grain prices showing signs of life.

• Poundland shares up 2% after yesterday’s 20% fall. The group saying that more than ever it was dependent on 6wks trading over Xmas didn’t help. If anything, it focused investor eyes on the risks at this end of the market. Group also says “the shape” of Xmas trading will be skewed by “Black Friday” (next week) even more than it was last year.

• Repeat, get out your shin-pads, it’s Black Friday a week today.

• Markets now seem relatively sanguine re US rate rise in December. Could we be getting a little too complacent? Final decision still 4wks away.

• Chancellor’s Autumn Statement next week & the begging bowls are out. Nobody is ever satisfied but no surprises there.

• Interesting to see that food-retailing is still bearing the brunt of deflationary pressures. ONS has said predominantly food retailers were down by 1.6% in Oct whilst predominantly non-food retailers were up by 1.4%. Online sales, meanwhile, were up by 10.6%.