A Day in the Life:

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

So Storm Desmond screwed up my journey down from Yorkshire to London yesterday meaning that I was able to study the English countryside in considerably more depth than I had intended.

And very wet it was too leading me to believe that this year’s drought has gone pretty much the way of all others that the Press has warned us about in recent years in that it has drowned to death and is no more.

But that did set me thinking that, just because the doom-mongers and apocalypse prophesiers have been wrong this and every other time doesn’t necessarily mean that they will be wrong the next time they suggest that 1) it won’t rain for a year, 2) that the oceans are going to boil away or that 3) the ice caps are going to melt and that we’re going to be flooded and our homes washed away before we revert to 2) above.

So I’d better stock up on bottled water. Because half a dozen litres of Evian will make all the difference if we end up in some dry-as-dust hell-hole, won’t it?

Anyway, Nobel Laureate Robert Shiller in his book Irrational Exuberance makes a good case for how the Press, in their quest to make news out of, well, not-news contributed to recent property, stock and bond bubbles. On to the news:

The News:

Pub, Restaurant & Drinks Producer News:

• Vianet reports H1 numbers, revenues +7.7% at £9.8m, basic EPS +18.2% at 3.5p. H1 dividend held at 1.7p.

• Vianet reports lower profits from Vending Solutions but also lower losses from Vianet America + higher Fuel profits. Chairman James Dickson says ‘I am pleased that our interim results demonstrate the resilience of our core Leisure division with the benefits of new i-draught orders and cost savings offsetting the impact of pub closures.’ He continues ‘looking forward, we have achieved some important contract extensions and new wins with key customers in both Leisure and Vending, where coffee telemetry and contactless payment solutions continue to drive growth.’

• Alongside H1 numbers, Vianet this morning reports that it is to sell its Fuel Solutions business to Wayne Fueling for £3.5m

• Vianet says ‘the impact of the Transaction [to sell its Fuel Solutions business] on the retained profit and overall equity of the Group is expected to be negligible; the impact of the profit on the sale of the net assets of VFS will be set off against the impairment of goodwill. The cash proceeds from the sale of VFS, net of disposal costs, is expected to be in the region of c.£3m and will be held in cash for the foreseeable future to support the Group’s growth strategy.’

• Vianet says ‘the disposal of VFS will enable Vianet to focus on the core businesses of Leisure and Vending Solutions and consolidate its financial resources. Vianet will make a further announcement to the market on completion of the Transaction, which is expected to occur on or around 31st January 2016.’

• Vianet disposal will increase focus on pubs, leisure. Fuel’s purchase had been intended to diversify income. Chairman James Dickson, Chairman says ‘over the past two years we have made significant progress to establish a strong reputation for Vianet Fuel Solutions in the UK forecourt sector and to turn the business around to a good level of profit this year. VFS operates in a competitive landscape which is increasingly dominated by major global players, such as Wayne, and therefore we believe it is now, strategically, a good time for the Group to sell VFS to Wayne who will continue to build on the strong foundations we have built.’ He adds ‘the Board is confident of the medium and long term prospects of the Group and its Leisure and Vending businesses where the focus will fully turn. The Group’s progress provides an encouraging outlook for 2016 and the Board
remains committed to delivering shareholder value’.

• Enterprise Inns has announced that it is to discontinue its move to amend the terms on a number of its bonds. It says ‘the Company is pleased that it received support for the proposals from a substantial majority of the bondholders involved in the process. However, the consent fee likely to be required to deliver the agreement of all bondholders necessary to secure agreement across all five bonds would not represent good economic value and so the Company has decided to withdraw the proposals.’ It says ‘the Company’s ability to execute its strategic objectives is unaffected by this withdrawal.’

• Admiral Taverns CEO Kevin Georgel has revealed the group is considering new operating formats and is well-placed to take advantage of rival pubco disposals. Speaking to M&C, Georgel said: ‘In the vast majority of cases, even in the light of the impending legislation, we believe that will be achieved through commitment to the tenanted model. However, there may be a small number of sites where we may be better to pursue an alternative operating model and that is something we are looking at with a greater degree of commitment than we have done before.’

• Yummy Pub Co’s new Stoke Newington site, The Stoke Newington Tea House, will open this Friday.

• Sales of Fairtrade wines in the UK rose 9% in volume to over 10.8 million litres in 2014 and global sales reached almost 30 million bottles.

• Hotels, restaurants and bars (+8.5%) led a rise in household spending in November according to the latest Visa Europe UK Consumer Spending Index data.

• Diageo is putting £10m into Danish whisky brand Stauning to increase its production capacity by 50 times its current 15,000 litres a year. Stauning co-founder Alex Munch commented: ‘We can’t wait to build the distillery of our dreams and are excited to be making more of the whisky we love and sharing it with the world.’

Travel & Hotels:

• In-resort ski prices continue to fall, according to a Post Office Travel Money report, with Bansko in Bulgaria the cheapest ski resort in Europe for the fifth year in a row. Second was Slovenia’s Kranjska Gora which fell 12% to £264.13 while in third places was Italy’s Livigno at £286.29 after an 11% drop. Fourth place was Austria’s Ellmau on £306.38 while Sestriere in Italy came fifth at £322.04.

• Monarch is expecting to return to profit in its first full year of trading since its acquisition by Greybull Capital. CEO Andrew Swaffield said: ‘This has been achieved despite serious challenges in some of our key markets in the Eastern Mediterranean. Our performance reflects the successful delivery of our turnaround plan, which has permanently removed £200m in annual costs from the business, and the hard work of our people.’

• Monarch says that passengers are booking their trips later since the terror attacks in Paris and Sharm el-Shiekh.

French energy giant Total’s Patrick Pouyanne ‘doesn’t anticipate a recovery in 2016’ for the price of a barrel of oil and expects supply to continue outstripping demand.

• Carl Berquist will retire as CFO of Marriott on 31 December but will remain as special advisor through March 2016.

• BRC reports UK retail sales grew at their slowest November rate in 4yrs last month as Black Friday failed to lift volumes. Black Friday last year made comps tougher than they perhaps otherwise would have been. BRC says the total value of sales in Nov this year was some 0.7% higher than in the same month last year.

Finance & Markets:

• Germany’s Reimann family is reported to have launched a $13.9bn bid to buy Keurig Green Mountain coffee. The FT reports that JAB Holding, the family’s investment vehicle, has spent nearly $30bn (inclusive of this deal) over the last 3yrs buying a number of various beverage companies. It quotes Bart Becht, JAB chairman, as saying this deal “represents a major step forward in the creation of our global coffee platform. It is a fantastic company that uniquely brings together premium coffee brands and new beverage dispensing technologies.”

• World markets: UK lower yesterday on the back of weaker oil. Europe up but US markets down + Far East down in Tues trade

• Oil prices fell 6% yesterday to hit 7yr lows of a little over $40 per barrel. Overproduction + strong $ said to be to blame. Price a shade higher in Tues trading at around $40.95 per barrel.

• Japan has avoided a technical recession in that its economy is now reported to have grown by an annualised 1% in Q3.

Retail Roundup from Nick Bubb:

Tesco Watch: Today is the anniversary of last year’s profit warning from Tesco that flagged that full-year trading profits would not exceed £1.4bn, some 20-30% below the most recent expectations, because of unspecified actions to improve UK competitiveness (soon seen as to do with the extra cost of putting more staff into the stores and the margin implications of being less aggressive with suppliers). At the time, we recall that Lex column in the FT, having noted that investors who bought at the intra-day low of c157p would be sitting on a 12% profit, thundered that c157p might not be the worst of the Tesco share price. That looked much too gloomy a view back in early April when the shares rallied briefly past the 250p mark, but last night the shares closed down at…157p.

BRC-KPMG Retail Sales figures for November (4 weeks to Nov 28th):
We flagged yesterday that the City was expecting modest 0.5% growth in LFL sales for last month and a modest improvement like that seemed a reasonable forecast, despite the fact that the comp was a bit tougher than in October (when LFL sales slipped by 0.4% LFL). However, given all the hype about how consumers were waiting for Black Friday deals, the outcome of -0.4% LFL for the November BRC-KPMG survey must be considered disappointing. In terms of the key Food/Non-Food split, it looks from the movement in the 3 month moving average that Food Retail was dull again in November, at -1.5% LFL and that must mean that Non-Food was only moderately up LFL overall, perhaps by c0.7%. Given that Furniture and Home Appliances sales were strong again and were the best performing sub-sectors, something was clearly dragging back the Non-Food average and the answer looks to be Clothing and
Footwear and “Other Non-Food” (which includes Electronics). With Black Friday ending up being more of an Online affair this year, it is interesting that Online sales of Non-Food grew 11.8% in November and that the Non-Food Online penetration rate reached a record 22.4%. Non-Food Online sales growth added 2.7% points to overall Non-Food sales growth, implying a “Non-Food Store” LFL of -2% last month…

John Lewis Sales Watch:
After a disappointing November, the focus in the sector now is on how December will turn out, so let’s look at how that great High Street bellwether John Lewis is likely to have got on last week, in the aftermath of Black Friday. A year ago momentum was sustained pretty well on the Sunday after and then on “Cyber Monday”, with lots of price-matching going on, so the comp was pretty tough, but we suspect the week will have started well enough to keep John Lewis above water overall, even if the week probably ended badly, given the wretched weather up North and the very mild weather down South. We would pencil in a 3%/4% increase in total sales overall (c2%/2.5% up LFL, ex the impact of the new Birmingham store etc), ahead of Friday morning’s official figures for w/e Dec 5th, which would imply gross sales down from £188m in the previous week to c£166m last
week, to show how much the big Black Friday spike distorts the shape of the traditional pre-Xmas sales graph.

Today’s Press and News:
The huge pay rise for the WH Smith boss Steve Clarke hits the headlines today (“Chief given 50% rise in same year firm pocketed millions by failing to pass on VAT discounts to customers”), along with the weak BRC-KPMG Retail Sales survey for November (“worst November since 2011”). The Daily Mail flags that Tesco veteran Jill Easterbrook has quit the company and the FT market report highlights that Tesco has been downgraded to “equal weight” by Morgan Stanley, because  Tesco does not have the balance sheet strength to close the price gap with the discounters, which “remains unsustainably high” for the Big 4 grocers according to the broker. The Daily Mail market report leads with the news that AO.com has found a new friend in the form of a US hedge fund and the Drapers website flags that Next has upped the stakes in the
pre-Christmas delivery battle, offering customers their purchases free if it fails to keep to its delivery schedule. Nick Bubb – nicholas_bubb@hotmail.com

Monday 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:

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.