Langton Capital – 2015-12-17 – Daily Wrap: Interest rates capture headlines, little else going on etc.:
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:
Interest rates in perspective:
• US rates have gone up but this needs to be put into perspective.
• They have ‘doubled’ – but only to 0.5%.
• Best betting is on four rises in full year 2016 – but that will only take the rate to 1.5%.
• It could be three years or more before rates exceed 3%.
• The Fed (and the Bank of England) has said that rates should not be expected to rise to the level seen in previous rounds of tightening.
• Rates last went up in the US in 2006.
• The UK is thought to be perhaps 6mths behind the US and the ECB may only raise rates a further 6mths to 12mths behind the Bank of England.
• Most floating rates paid by companies, individuals etc. are priced as LIBOR plus and, if the ‘plus’ bit drops a little, the actual rate paid on the street will not increase by as much as the base rate itself does.
• In addition to floating rate debt, many companies have fixed rate commitments. These will clearly not rise when rates go up – though the capital value of the bonds may fall if the instrument is traded.
Interest rates’ silver lining:
• As rates rise, discount and annuity rates should also increase.
• As this is used as the denominator when determining pension liabilities, deficits here across the corporate landscape should be reduced.
• This could lead to pension holidays and, as a result, the earnings of some companies could be increased.
• Higher retained earnings could be used to pay increased dividends.
Random information, hopefully not all of it useless:
• No real surprise that Nando’s has topped the poll of restaurants in terms of twitter followers.
• Market up sharply as US rate rise confirmed.
• Sterling down noticeable vs both US$ (understandable) and Euro (less so).
• Oil down yesterday. Metals all weak. El Nino impacted soft commodities (sugar, cocoa, orange juice) showing some signs of price weakness.
We’re so 21st Century, this morning’s Tweets (diff. font size denotes importance):
1. Fulham Shore reports H1 numbers to 27 Sept. Period now includes Franco Manca, bought on 21 April 2015.
a. Fulham Shore H1: Franco Manca up to 18 units, today’s numbers include a little over 5mths trading since acquisition.
b. Fulham Shore H1: Sales £13.9m v £5.5m last year, operating profit £1.7m v £0.9m. Group opened 1 new Real Greek in H1.
c. Fulham Shore H1: Period featured announcement of franchise agreement with Bukowski, will open unit in Soho spring 2016
d. Fulham Shore on current trading. Says now has 27 restaurants trading, 2 more to open in the spring. Group ‘excited about the future’
2. ALMR has brought YO! Sushi executive chairman Robin Rowland on to its board and has established a new Casual Dining CEO forum
3. All-day café, bar and restaurant group Loungers had record sales of £1.7m last week, with LfL sales up 7.2%
4. Honest Burgers has confirmed a deal to open a 2,000 sq ft site across three floors on Southampton Street in Covent Garden in Feb
5. Restaurants and pub operators are raising menu prices in anticipation of a lucrative festive period, writes M&C Allegra Foodservice
6. Admiral Taverns sold 62 non-core pubs for a total of £10.6m and a further 19 core sites for a combined £7.9m during its latest financial year
7. Enterprise Inns’ CEO Simon Townsend saw his pay almost double to £1.63m in the financial year to end-Sept
8. Nando’s has topped a list of leading food and beverage brands on Twitter, with its 1.5 million followers
9. Dart Group has agreed the purchase of three new Boeing 737-800NG planes on top of the 27 announced in early September
10. TripAdvisor has reported that a third of travellers are planning to spend more on travel in 2016 than they did this year
11. US Fed raises rates in first upward move in more than 9yrs. Asian shares up on the well-flagged news.
a. US Fed focused on employment as trigger for “gradual” tightening. Yellen comments ‘the process is likely to proceed gradually.’
b. UK pay growth slows in development that could delay rate rise this side of the Atlantic. Wages ex-bonuses +2.0% in 3mths to Oct.