Langton Capital – 2015-11-27 – Daily Wrap: SSP, travel companies, Marston’s, game-retailing & other:
Leisure Wrap & Other:
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. As always, contact us if you’d like further details:
Consumer confidence slips, every pound a prisoner:
• Latest GFK survey shows consumer confidence slipped in UK in November to the lowest level since the summer
• This fits in with 1) the belief that the post-election euphoria has been relatively short-lived and 2) that trading is likely to remain challenging as operators adapt to what may well be the ‘new normal’
• GFK says ‘confidence appears to be depressed by a combination of wider economic, political and social events’.
• Terrorism will not have helped but pub companies and the like were sounding notes of caution before outrages in Egypt and Paris.
• Mediocrity is not an option (reiterated by M&B and by Marston’s this week) and groups are going to have to work hard for their money
• This is what it is. In the way that a hard frost kills some frosts, a challenging (and who’s not to say realistic & semi-permanently more demanding) market will force the exit of some operators and will dissuade others from entering
• New entrants may be causing something of a problem in central London and in some other ‘hotspots’ but a more challenging environment may restrict returns and oblige PE houses and the like to re-examine their earnings assumptions and their models in general
• However, good operators will continue to prosper. Food and accommodation remain attractive. Hotspots may be best avoided. Value for money (which does not necessarily mean ‘cheap’) remains key.
Terrorism & leisure travel don’t mix well – official:
• Interesting to note that train bookings to Brussels were down 159%.
• That’s not a typo, it’s a negative number suggesting that there were no bookings and around 59% of a normal level of bookings’ cancellations.
• Hotels will be suffering in Brussels and occupancy in Paris may be down by as much as 50%
• And why wouldn’t it be because, on the margin, would-be travellers will be cancelling their trips
• As always, destination-specific disruption will impact operators with assets on the ground more directly than it will agents
• And agents (such as tour operators) which have mobile assets (planes) and a variety of destinations to which they can travel, should recover from such upheaval relatively quickly
• With the above in mind, we’ve been a little bemused as to why SSP’s shares have not reacted more to incidents in Paris, Brussels, Egypt and elsewhere.
• Because it’s not just about the number of units in the locations in question but rather about that and the propensity to travel in general
• And this has presumably been accepted by shareholders selling out of TUI, TCG etc.
• So why not SSP?
• We can see that the group is a major player in Europe but that the market is fragmented in Asia and elsewhere.
• And we’re capable of joining the dots but, in the short term, we would have thought that the shares would have weakened a little at the very least.
Video game retailing:
• See earlier email for more detail.
• Game Digital sells video games (a growth area) from shops (not so much).
• We observe the group’s rating (c17x) and then consider how it may be subject to the same trends that sunk HMV, Blockbuster, Game Group itself first time around, book retailers and others and which have led to travel agents reducing the number of shops that they operate on the high street whenever the opportunity to do so has presented itself.
• Overall, we’re not convinced that the group will be immune from what look like unstoppable forces.
Marston’s offers solid value:
• Shares giving back a modest amount of ground at time of writing.
• Nonetheless, group now sells at c12x current year earnings & offers a yield of 4.6%.
• Added to which it is growing sales > market at the LfL level and is improving margins.
• Impact of NLW will be ‘modest’.
• Build costs a little higher but plenty in the pipeline and group avoiding overpriced hotspots.
Random information, hopefully not all of it useless:
• Sterling rallies a little & oil price down. Inflationary pressures lasted perhaps a day and a half.
• US half day today. Black Friday. Update on retail sales over the weekend and next week.
• Thomas Cook shares rally for second day on Thursday. Marston’s shares up on well-received FY numbers.
• Pat Val shares up in early Friday trading.
• UK shares down in early Friday trading but rallying by lunchtime. China sell-off in last hour’s trade having diminished impact.
We’re so 21st Century, this morning’s Tweets (diff. font size denotes importance):
1. Patisserie Holdings’ strong growth has continued, with full year revenue up 20% to £91.9m and adjusted PBT +29.2% to £14.6m.
a. Pat Val: Maiden final dividend of 1.67, which would give the group a yield of 0.5%. Says ‘We strengthened our team following our IPO’
b. Pat Val: Strong performance in its 116-strong core Patisserie Valerie business. Online Cake Club now stands at 306,000 members
c. Pat Val: Group has number of growth avenues to tap into in order to justify its premium rating of 29.8 times earnings
2. Should Langton save time value of money delaying buy of £5 kettle if it means running risk of electrocution or death by scalding? Poss not
3. Marston’s back in meaningful growth. LfLs ahead of the industry with margins going up. Sounds good. PER <12x and yield 4.6%.
a. Marston’s raises issue of over-supply. M&B, Coffer Peach ditto. Some agreement potentially harmful number of units going on, esp. in London
4. Wagamama intends to open four key restaurants in New York next year and has already secured its first site
5. SA Brain has agreed an £85m finance package with Lloyds Commercial Banking and HSBC Corporate Banking to upgrade its pubs + grow Coffee#1
6. Remy Cointreau has reported a 7.3% fall in H1 like-for-like operating profit to 107m euros, on the back of falling Chinese demand.
7. Consumer confidence slipped in UK in November to the lowest level since the summer per GFK.
8. Survey by Devicescape has concluded that Wifi is best at Greggs in a poll of 40 high street shops and restaurants
9. The IATA has reduced its long-term growth forecast for airline passenger numbers to an expected 7bn by 2034, down from 7.4bn
a. Euromonitor International has said that tourism stands to lose the most as a result of repeated terrorist attacks. True but not new news
b. Net bookings (which combines both daily bookings and cancellations) of train trips to Brussels tumbled 159% post lockdown
c. Travel agents saw passenger bookings to Paris fall 50% after a ‘dramatic’ fall in flight bookings in week post Fri 13
d. Global travel and tourism sector is set to grow by 3.5% this year, according to figures from World Travel and Tourism Council
10. Video game retailing. Times move on + what’s the role of bricks + mortar? Still a raison d’etre but diminished, surely? See email.