Langton Capital – 2015-12-07 – Daily Wrap: MRO, Merlin, Domino’s, plastic bags & 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:
• Nothing is yet certain but it looks as though the legislation may be softening
• We’ve had a General Election since the bill passed through both Houses of Parliament, Vince Cable has gone and the complexion of the H of Commons is much-changed
• And now it looks as though parallel rent assessments are off the table
• This is helpful. Best not to count your chickens but it also bodes well for legislation relating to ‘substantial’ or ‘material’ or ‘significant’ investment in properties and how such investment could be outside the MRO
• Hence we consider there are some grounds for cautious optimism. Consider:
o The legislation may be softening
o Punch & Enterprise are not passive observers – they have put in place mechanisms whereby they will take control of a larger number of their pubs going forward
o The MRO is only triggered on a rent review or change of lessee – and there are some moves to restrict this only to where rent increases are proposed
o PUB & ETI are offering few if any new leases. Existing leases may have been for 15yrs. There may be an average of 8yrs or 9yrs outstanding. Hence there may only be one review the property owners are able to take back their properties from would-be free-of-tie lessees
• The above does probably mean that the days of running a vast estate of perhaps 8,000 with 300 people operating spread sheets are gone for good
• Property owners will have to become more involved
• This will involve more effort and will up the risk – but it could also bring with it greater rewards & we consider that (what had been) the leased & tenanted market could offer some interesting opportunities going forward
Merlin. You can’t keep a good stock down.
• Well you can, actually, but MERL has been strong over recent weeks such that the group’s shares have clawed back around half of their Alton Towers-related falls.
• There is little reason to believe that this recovery will not continue for some time as, when one looks at the fundamentals, the company has an offer that could continue to expand into China and elsewhere.
• Stocks such as this are rarely if ever cheap, per se.
• But occasionally buying opportunities do come along and would-be buyers may be advised to acquire stock.
• At some point, it may be right to exit but that eventuality should be many years in the future.
Random information, hopefully not all of it useless:
• Following on from our comments on Punch and Enterprise above, it is interesting to see that Admiral Taverns has also increased its sales, EBITDA and operating profits.
• Interesting to see that Domino’s Australia may have its eye on the German franchise. We have been watching the independent Domino’s Pizza Poland with interest for some time.
• Evolution continues. Costa Coffee wishes to sell more at lunchtime, expands its bread, cakes & salad ranges.
• So who’d be a plastic bag manufacturer? An 80% reduction in demand sounds about right. It anything, the fall could be even greater once punters have become used to carrying a bag in their pocket.
• Sterling stronger vs US$ but down against the Euro. Generally helpful re input costs (many if not most are US$ denominated) but less good for those planning summer holidays on the Continent.
• Currency moves suggest that US rate rise is well and truly baked into markets. Fed meets on Tuesday and Wednesday next week. We call it ‘policy normalisation’ now – that at least removes the need to refer to interest rates going up.
• The Bank of England’s MPC meets this week. Odds heavily in favour of it leaving both rates and QE unchanged.
• Oil flirting with multi-year lows (around $42 per barrel) as Saudis & other low-cost producers seem willing to keep pressure up (via low prices) on the frackers.
• All other commodity prices as expected. That is all weak with the exception of the El Nino impacted products such as sugar, cocoa and OJ. Cattle prices low (after red meat was strong a few months ago), now down 23% over the last 12mths.
• London housing. Interesting to see Berkeley and Foxton’s share prices going up and Savills’ going down.
• Broker downgrades impacted Whitbread on Friday. Shares still up on the week, however (see LRI in this morning’s email) – and see comments on Merlin above.
We’re so 21st Century, this morning’s Tweets (diff. font size denotes importance):
1. Conviviality announces appointment of Mark Aylwin as MD of Matthew Clark to replace Steve Thomson
2. The government has released the second part of its pubs code consultation and says that Parallel Rent Assessments are no longer required
3. Scottish Beer & Pub Association says that, one year on, the change in Scottish drink drive laws has ‘put pressure on pubs.’
4. Admiral Taverns says has completed turnaround. FY results show turnover up 2.2% to £78.4m, underlying EBITDA up 5.3% to £24.9m
5. Honest Burger has been named 2nd fastest growing private co in UK by Sunday Times. Sales are up by 206% over last 3yrs
6. Times reports Domino’s Australia franchise owner has approached the UK business with a view to buying its troubled German franchise
7. City Pub Co has raised in excess of £8m via the launch of a 6% Convertible Preference Share offer
8. Costa said to be making a move into the lunch market via the launch of its Costa Fresco offer. It will include more salads, quiches + cakes
9. Rail fares in England, Scotland and Wales will rise by only 1.1% from 2 Jan, the lowest rise for six years.
10. M&C Allegra’s Food To Go Tracker Q3 2015 shows food to go’s popularity continues to grow with consumers aged 18-34 growing 3% y-o-y.
11. The 5p plastic bag charge has driven a remarkable 78% drop in the number of carrier bags taken home by Tesco shoppers in England.
12. CVC Capital Partners has taken a 40% stake in Moto, the UK’s largest motorway service station network
13. EasyJet is reported to have cancelled 176 flights to Sharm el Sheikh in November alone. Flights remain suspended
14. 888 has updated on FY trading saying it ‘has continued to deliver a very encouraging performance in line with the Board’s expectations.’
15. US added 211k jobs in Nov, a development thought likely nail down an interest rate rise when the Fed meets on 15 + 16 of this month
16. OPEC members failed to agree an oil production ceiling at last Friday’s meeting, oil price re-testing recent lows c£42.70