A Day in the Life:

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

So is it just me or do the pavements get a bit wobbly in December?

It may be fracking or global warming or whatever the latest Big Thing is but I think that a number of my fellow trying-to-be commuters find manoeuvring around a little more challenging this month than at most other times of year.

And the booming party music seems to be disorientating them too.

I mean I’m hardly guilt-free myself but, with a zeal similar to that of a holier-than-thou ex-smoker, I feel able to say that you can’t work late in the office these days without having to edge around rather fragile-looking but still be-suited revellers and heaven knows what sort of state they’re in later in the evening.

Anyway, Langton had a number of ‘evening meetings’ this week and it’s got even more next so, before we tempt fate too much, let’s move on to the news:

Whitbread Q3 Update – Conference Call:

Following its Q3 update this morning, Whitbread hosted a conference call for analysts and our comments are set out below:

Introduction, Alison Brittain:

The new CEO’s aim is to continue to build & strengthen the group’s brands. She buys in to the target milestones, will continue the journey

The systems & processes within the company will require some investment as a result of the rapid growth thereof

Hotels:

Group’s second Hub opens this week at Tower Hill with a third opening in Shoreditch later this year.

November is positive – but ‘softer than the rest of the quarter’. Year ‘had been tracking c4% – but in November it was c1.5%’. Says PI was not down as much as the market

You had been looking for 4% REVPAR increase for the rest of the FY; has this changed? Group downplaying November. Clearly, if 1.5% were to persist, numbers would come under downward pressure.

Says ‘November is a strange month’. Forward bookings are low at this time of year – people mentally are thinking either pre- or post-Christmas. Hence Jan bookings tend to be strong.

Group was asked about ‘the last week’ but will not be drawn to make comments on a weekly basis.

Will your premium over Travelodge narrow? Competitors are pushing prices. Travelodge is not opening much space (so needs margin). This ‘may continue’. It gives Premier Inn opportunities. There ‘are more levers to pull’. Prices are c£15 to c£18 higher at PI vs Travelodge.

Have you seen a step up in cancellations? No. It was simply a little softer on the leisure side, Friday & Saturday.

Is Airbnb causing problems? It’s a key issue, says WTB is not complacent. Says ‘broadly speaking, we have not seen an impact.’

Internationally? Robust in India (from a low base). Middle East ‘rather challenging given the lower oil price’. Germany will open in February.

Restaurants:

Pub restaurant market outside the M25 ‘remains very competitive’.

Costa:

Costa LfLs were up by only 0.5% in November. Group says this has been as a part of a general pre-Christmas slowdown (witness BRC – also today’s Coffer Peach numbers)

November was ‘somewhat softer’. Group was questioned on this a number of times & said one should not read too much into it.

Group points out it had a soft August ‘and bounced back rapidly’.

Prices? Group has not put prices up for some time. Gap has opened up. Starbucks & Nero put prices up pre-Xmas. Alison Brittain says this is ‘a good position to be in’.

It sounds as though Costa prices may be set to rise. What is the price elasticity? No real comment.

China. Around 20 fewer stores now set to open. Group also to open a shade fewer in the UK – mostly Esso units. It’s ‘about getting quality sites rather than just sites’.

Costa Fresco roll-out? It’s both a concept and a test. It has ‘street appeal’. It’s in response to customer trends. Will test customer reaction. It could be retrofitted to a number of stores if consumers respond positively.

Other:

What will be the impact of ‘upgrading systems’? Gradual. Is it needed to fight off the online operators? Just launched a new website. Aim to make frictionless. But surely PI prices are simply a shade on the high side?

Financials. Are we right to think you will hit your profit targets but via higher margins rather than higher sales? Group skirted the question, said numbers of c£540m to c£545m are intact

Langton Comment: Whitbread’s conference call was cautionary in tone.

The group has a new CEO but the feeling that things slowed a little, particularly in November, goes perhaps a little deeper than that.

Indeed, given the level of questioning, the company may wish that it hadn’t commented on November at all – though that’s not really possible – as there were a number of questions focusing on the ‘exit rate’ i.e. what is now looking like the weakest month of the year to date.

And that’s understandable – as is the reaction (down c3%) in the group’s shares.

Investors may decide at this point to hold back & to wait, see how December and January pan out. Whitbread has said that January bookings historically have been very strong suggesting that the company should have a much clearer line of sight on current trading.

Overall, and when combined with comments made in the Coffer Peach Tracker this morning, one has a feeling that the market may be slowing. This could be temporary but, as the market attempts to discount the future, it is having an impact.

Clearly WTB’s share price is equivalent to PER multiplied by EPS and, though the latter is not changing at the moment, its composition perhaps is and the PER could come under a little pressure. Perhaps time to stand back & garner further evidence as to ongoing trends.

The News:

Pub, Restaurant & Drinks Producer News:

• The average cost for a family dining out for Christmas is set to reach £340.57 this year, according to a study of over 200 businesses by Net Voucher Codes. That seems like rather a high number.

• Champagne Taittinger has bought 69 hectares of land in Kent for a vineyard it will call Domaine Evremond. The group expects to produce 300,000 bottles annually.

• Yum Brands will return some $6.2bn to shareholders before splitting off its China business and listing it on the NYSE and possibly in Hong Kong. Yum China, which boasts 6,900 restaurants and accounted for 54% of the KFC owner’s overall Q3 operating profit, is expected to be spun off by the end of 2016.

• On-trade sales of sparkling wine has grown 41% in the last 12 weeks to £84m, outpacing beer, wine and cider.

• A YouGov poll suggests British people are more likely to pick vodka and cider as their Christmas drink rather than old favourite fortified wine.

• Asian Fusion chain Wok&Go has signed a 15-site development agreement for the UAE with the first site set to open in the Al Ghurair Centre in Dubai. Founder

• Soho House’s planning application for a Brighton seafront development housing Dirty Burger, Chicken Shop and Pizza East has been approved. The Soho House private members club will be located on the roof and feature a sun deck, one metre plunge pool and an outdoor bar.

• Morrison’s has cut the price of unleaded petrol to 99.9p per litre, the lowest level seen in the UK since 2009. Such a move will leave more consumers’ cash available for them to spend on other goods & services

Travel & Hotels:

• Shares in Fosun, owner of Club Med, Cirque du Soleil and a stake in Thomas Cook, have been suspended

• FT reports Fosun International has suspended its shares in wake of reports that its chairman, Guo Guangchang, had gone missing. Fosun has said that its business operations were continuing normally. The FT suggests that in similar situations, directors had in fact been detained by the police in anti-corruption investigations – but concedes that there is no evidence either way in the case of Mr Guo.

• The FT reports ‘Mr Guo, 48, co-founded Fosun with three university friends in 1992.’ He is thought to be a multi-billionaire but the FT reports that his name has recently been linked to police probes into corruption.

• A survey from The Go Group confirms both anticipated leisure and business travelers were lower following the Paris attacks. Before the Paris attacks, 16% and 26% were unsure of leisure and business travel, respectively.  Afterward, 21% and 29% were unsure.

• French private equity firm LBO France has acquired French travel agency Fram in a deal worth around €40m.

• A decision on whether to expand Heathrow Airport has been delayed until summer 2016.

Other Leisure:

• Richard Snow is to take over as Acting CFO of Ladbrokes, with current CFO Ian Bull set to leave his post at the end of February 2016.

Finance & Markets:

• Bank leaves UK interest rates at 0.5% and QE unchanged at £375bn. Votes were 8-1 and 9-0 respectively.

• Bank says re UK interest rates ‘twelve-month CPI inflation remained at -0.1% in October, a little more than 2 percentage points below the inflation target.’ It says ‘inflation is expected to have been slightly positive in November, and is projected to rise further as some of the large falls in energy and food prices at the turn of last year drop out of the annual comparison. Nevertheless, core inflation remains subdued, and CPI inflation is expected to stay below 1% until the second half of next year.’

• Bank says ‘MPC intends to set monetary policy to ensure that growth is sufficient to absorb remaining spare capacity’. It does not see inflation as a threat but intends that it move back toward 2%.

• Bank of England will only raise rates ‘gradually’. It says all members see the ‘persistence of the headwinds weighing on the economy’.

• B of England says rates will rise ‘more gradually and to a lower level than in recent cycles.’ It does say however that ‘this guidance is an expectation, not a promise. The actual path Bank Rate will follow over the next few years will depend on the economic circumstance.’

• Number of Americans filing for unemployment benefits rose to a 5mth high last week but data thought not likely to change rate rise plans

• UK trade deficit up in Oct per ONS stats. Rose to £4.1bn from £1.1bn in Sept. Imports up and exports slightly down

• World markets: UK down yesterday, European markets down but US slightly higher. Far East up in Fri trade

• Oil price hits new 7yr lows, trading at around $39.50 per barrel. OPEC reports pumped oil at fastest rate in 3yrs in November

Retail Roundup from Nick Bubb:

Today’s Press and News: Most of the front pages flag the Government’s embarrassing decision to delay a decision on Heathrow expansion until after the London Mayoral Elections next May…but the Guardian continues its campaign against Sports Direct, following yesterday’s brutal expose and subsequent share price slump, with the headline “Sports Direct: “the firm that is a scar on British business”.

BDO High Street Sales Tracker: this weekly High Street sales index of medium-sized Non-Food chains organised by the accountants BDO is a good guide to underlying Fashion store trading momentum, although it still excludes Online sales…Fashion LFL sales have continued to be poor in recent weeks, despite weak comps, and BDO has reported today that last week, w/e Dec 6th, saw High Street sales slump again, with overall Fashion store LFL sales down by 7.9% on last year. Total store LFL sales were down by 5.7% (including some Lifestyle and Homewares retailers) and overall Non-Store/Online sales were only up by 11.6%.

Trade Press (1):
The front page headline in Retail Week magazine today is “Retailers pin hopes on Christmas spending spree”, flagging that retailers are set for a late December sales rush with “pent up spending power” poised to help them bounce back from a sluggish November, according to a forecast from Mintel. RW also flags that Homebase has poached Tesco executive Ewan McMahon to be its Retail Operations Director as it continues its turnaround effort, Asda CEO Andy Clarke said that steering clear of Black Friday was one of the best decisions the grocer has made all year and Cath Kidston’s full-year losses have widened to £14.2m (despite soaring International sales), as it continues its expansion in Asia. The Editor-in-Chief thunders in his column that “Retailers should take heart despite golden quarter woe” and that “the sector is sitting on
pent up demand that could be wasted were the High Street to lose its nerve and slash prices too hard and too fast”.

Trade Press (2):
The main news story in Drapers magazine is that the High Street was littered with red Sale signs this week as retailers slashed prices to counteract a drop-off in sales following Black Friday, although Drapers separately flags that the majority of fashion retailers and parcel carriers emerged unscathed from post-Black Friday and Cyber Monday delivery delays this year. Drapers also notes that New Look Men will open a fifth store in Kingston early next year and that Next has been accused of employing low-earning apprentices to help shave £2.5m off its wage bill. Drapers also has its Review Of The Year, noting that from closures and job moves to high-profile launches and mergers, 2015 has been a turbulent year. In her column, the Editor reviews the new shopping developments that are redrawing London’s retail map, but the big front page feature is the Top 100 2015:
Drapers’ definitive list of fashion retail’s “movers and shakers” (more on this next week).

News Flow Next Week: Things are again quite busy next week, kicking off with the Carpetright interims on Tuesday, which will be closely followed by the latest Kantar and Nielsen Grocery market share data. On Wednesday we get the Dixons Carphone interims and the SuperGroup interims and then Thursday brings the ONS Retail Sales figures for November. 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:

Slowing economy. Whitbread, Coffer Peach, various economists etc.:

• A number of voices have suggested that the economy is slowing.

• Macro comments have come from the BCC, NIESR etc. and now we have sectoral comments from Coffer Peach and micro comments from Whitbread (on the back of Marston’s, M&B, Greene King and others).

• It will not be possible for some time (if ever) to disaggregate the impact of the Friday 13th murders in Paris from other, perhaps deeper, trends

• Coffer Peach has suggested that terrorism fears have been responsible for a slowdown (indeed a reversal) in the fortunes of both pubs and restaurants in the Capital.

• Air France (and others) have pointed to lower traffic numbers.

• Stagecoach yesterday pointed to Paris as the major reason for reduced traffic numbers. Shares in Go Ahead fell in sympathy.

• We remain a shade cautious re London in particular and the wider economy in general.

• As Whitbread said, Christmas gets in the way & it will have better visibility in the New Year. On-trade operators’ opinions are also clouded by Christmas.

Whitbread specifically, summary:

• See further detail above.

• New CEO and all the rest but WTB seemed a little ill-at-ease passing its somewhat cautious thoughts re current trading.

• The EPS may not be changing but, as sales have slowed a little, this must be due to margins being a little ahead of analysts’ forecasts in order to compensate

• This is not the stuff of expanding PE ratios and the shares have fallen as a consequence

• Whitbread understandably says that one slow month does not establish a trend and it says that it will have better line of sight in January

• That said, see our comments on the slowing economy above

Random information, hopefully not all of it useless:

• To say that the NLW is a Sword of Damocles is perhaps a little dramatic. It is what it is. The impact will depend on the outlook for pricing next year and the year after, etc. In a ‘normal’ economy, one may be able to pass price increases on to customers and share the impact across the economy via inflation. Just because there is no inflation today does not mean that there won’t be any tomorrow.

• Cattle prices are extremely weak. Feeder cattle prices now down the thick end of 32% on the year. Other commodity prices no change. Very weak with exception of El Nino products & a bit of a bounce in UK milk.

• Sterling down against both the US$ and the Euro. Not so good for inflationary pressures. Just as well that there aren’t any.

• MPC due to announce its latest thoughts on interest rates and QE at 12.00 today. Betting heavily on n/change to either.