Langton Capital – 2015-12-21 – Carnival, Brakes, gin drinking & other:
A Day in the Life:
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Find previous emails at http://www.langtoncapital.co.uk/daily-notes/
So Langton visited Home Bargains over the weekend and very exciting it was too.
Because, as with fellow discounters Aldi, Lidl and the domestics Wilkinson, Poundland etc. etc. the prices are low but the different pack sizes added an element of suspense and required the on-going use of a calculator and the construction of a couple of conversion tables, etc. for the edification and delight of everyone within shouting distance.
However, with the Patak Rogan Josh mix jars (same size as elsewhere) selling at just 89p (100p when on ‘offer’ with the big boys, perhaps 150p ‘normally’) and even being advertised on www.hotukdeals.com at 69p or 55p) it suggests that there’s some money to be saved by shopping around.
All of which does foster the feeling that the UK’s major grocery retailers have been jerking the public’s chain a little bit with their two-for-one offers and their ‘discounts’ all of which mean, when flipped on their heads, that you’re being taken for a bit of a ride when paying the full price.
Or when you’re in a panic and have to pay 299p or 369p or whatever for an unknown-value-item such a folded bit of birthday card. On to the news:
Pub, Restaurant & Drinks Producer News:
• Food delivery company Brakes may be planning an IPO valuing the co at up to £2.5bn reports Sunday Telegraph. The paper reports that owner Bain Capital has been working on a float for some time but cautions that interest from third parties may see the business sold before it has a chance to list.
• The UK beer and pub industry is on track to meet environmental targets, with carbon emissions down 1.2% in 2014 and a total of 29.2% since 2008. BBPA chief executive Brigid Simmonds writes:
• BBPA comment. ‘The sector continues to invest in innovation and efficiency and it is paying off, with further improvements in water efficiency, another reduction in energy use and more companies moving towards zero waste, so that we remain well on track to meet our strengthened 2020 targets.’
• Lib Dem MP Greg Mulholland will chair the new Pub Confederation, which aims to counter the ‘self-interested lobbying of vested corporate interests in the pub sector’. The group intends to campaign alongside organisations such as CAMRA, ALMR and SIBA. Speaking to M&C, Mulholland said: ‘The British Pub Confederation will ensure that the voice of pubs, publicans and consumers is heard alongside the BBPA as the voice of the pubcos and big brewers. We will be happy to work with any organisation on issues and campaigns that we both support, so that applies to any organisation. If there is a common campaign aim then we would certainly support it alongside the BBPA, such on positive taxation for pubs.’
• Private equity group Livingbridge has bought a c40% stake in Le Bistrot Pierre for £10m, valuing the 14-site company at c£22m. The group plans to add five sites a year and is forecast to make £2.8m EBITDA on turnover of £18.7m for the year to end March.
• Migrant workers are driving down pay in low-skilled service industry jobs, according to research by the Bank of England.
• Research by Mintel shows Brits are expected to drink 29m litres of gin this year with sales in excess of £1bn for the first time. Younger consumers and a flourishing craft spirit market are driving the popularity surge and Mintel forecasts that gin sales will continue to rise to £1.31bn by 2020. Vodka remains the most popular white spirit, with sales up by 8% over the past five years to £3.46bn.
• Last Friday marked the busiest day of the year in terms of alcohol sales across UK pubs, bars and restaurants. Alcohol consumption on ‘Booze Black Friday’ has grown in recent years, with sales 114% above an average Friday two years ago and up 145% last year.
• Greggs has opened its 100th franchise site at the Euro Garages forecourt in Shinfield, Reading. Martin Kibler, property director for Greggs, said: ‘To reach the 100th store milestone is a real achievement for both Greggs and our franchise partners. Our work in the franchise sector is integral to our business as it enables us to extend the Greggs offer to previously inaccessible locations, particularly transport hubs.’
• Nearly £1bn has been wiped off fresh food sales in the past year as UK supermarkets continue to cut prices to compete with the discounters.
• Carnival reports FY numbers, Q4 revenue yields +4.1% in constant currency, better than guidance (of 3%) given in Sept.
• Carnival FY: Says FT adjusted EPS is 270c v 193c last year. Q4 cruise costs per berth day +3.2%, in line with estimates.
• Carnival FY: Re outlook, says ‘cumulative advance bookings for the first 3 quarters of 2016 are well ahead of the prior year’. This is ‘at slightly higher constant currency prices’.
• Carnival outlook: Says ‘FY 2016 net revenue yields are expected to be up approximately 3% in constant currency’. Adds 1% will be ‘due to an accounting reclassification’.
• Carnival outlook: FY16 EPS should be 310c to 340c vs the 270c just reported. President and Chief Executive Officer Arnold Donald reports ‘we nearly doubled our fourth quarter results and ended the year with 40 percent higher earnings. Strong operational execution delivered $0.25 per share higher earnings than the mid-point of our full year 2015 December guidance, despite a $0.10 drag from the net impact of currency and fuel prices. This year we achieved a 4.3 percent improvement (constant currency) in revenue yields compared to the prior year due to higher on-board revenues and increased ticket prices as we have driven demand in excess of capacity growth, while our ongoing efforts to leverage our industry-leading scale helped to contain costs.’ He adds ‘our strong performance led to record operating cash flow of well over $4 billion versus $3.4 billion last
• Carnival’s Mr Donald reports ‘as we had anticipated, with less inventory remaining for sale, we have begun to sell at higher prices than the same time last year, particularly close to departure, affirming our expectation of continued yield improvement in 2016.’ He concludes ‘we have accelerated progress toward and remain well positioned to achieve our double digit return on invested capital threshold in the next two to three years. Over time, we expect to continue to return excess cash to shareholders as demonstrated by our recent 20 percent increase in quarterly dividends and more than $400 million in share repurchases.’
• Thomas Cook plans to make further cuts to its third party supplier list. Chris Mottershead, managing director of Thomas Cook UK, told TTG: ‘Yes I’m reviewing. As the new managing director, we’re looking at all parts of the business. We want to focus on holidays that complement our own – we don’t want to be selling things that are directly competing [with our offering], so inevitably there will be some [third-party operators] that fall out.
• VisitEngland research shows that 27% of British adults are planning an overnight trip in the UK this Christmas and New Year. The activity could generate as much as £2.5bn for the economy.
• October saw a record-breaking 3.4m international visits to the UK, up 12% year-on-year, with spending by international tourists up 9%.
• Star Wars film may make $2bn for Disney over time, breaks box office records on its release. Jurassic World made $1.7bn.
Finance & Markets:
• Richmond Fed president Jeffrey Lacker has suggested that 4 rate rises (of a quarter point each) in 2016 would be ‘gradual’. The Fed’s chairperson Janet Yellen and others have used the word ‘gradual’ in recent releases but a definition had not hitherto been supplied.
• World markets: UK down on Friday with Europe down too. US also down but Asia mostly higher in Mon trade
• Oil price hitting new lows. Now trading at around $36.30 per barrel
• Sir John Major has said the UK is unlikely to rapidly raise interest rates in the wake of the Federal Reserve’s decision to increase rates for the first time since 2006. Speaking to Andrew Marr, the ex-PM said: ‘I think this will be a very slow process. I don’t think we’re going to suddenly see a huge spiral in interest rates.’
Retail Roundup from Nick Bubb:
Saturday Press (1): The main focus in the Saturday papers was on the news that, after all the recent criticism in the press of their employment practices, Sports Direct has hit back by issuing a long list of rebuttals and announcing that Mike Ashley will “personally oversee a review a review of all agency worker terms and conditions” . The witty riposte from Labour’s Chuka Umunna that this “has the whiff of a pupil marking its own homework” was widely quoted and the editorial comment was unsympathetic: the Daily Mail said that Sports Direct should open up its Shirebrook warehouse as a tourist attraction and the Times said that City bankers can be relieved that Mike Ashley has taken over from them as the “pantomime villain” for the media.
Saturday Press (2):
Saturday Press (3):
Sunday Press (1):
Sunday Press (2):
News Flow This Week: Apart from the Findel EGM at 11am this morning in sunny Manchester, called for by Sports Direct, there is no company news scheduled this week, as we run up to Christmas Day on Friday. But, as the end of the month is looming large, we get the CBI Distributive Trades survey for “December” later this morning and the GFK Consumer Confidence survey for December is out first thing tomorrow. And on Wednesday evening on BBC2 there is a documentary about John Lewis’s preparations for Christmas. Nick Bubb – email@example.com
This was produced for distribution Friday 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:
Interpreting trends in the pubs & restaurants industry:
• BDO’s report (see earlier email) paints a pretty comprehensive picture as to the state of the market for pubs, bars & restaurants in the UK.
• Not surprisingly, it takes a top-down approach.
• A better economy (witness GDP) has led to a period of sustained growth in real incomes (they turned positive in H2 2014 after about six years of declines) and this has boosted consumer confidence.
• BDO then drills down to our sector saying ‘whilst the general economic picture may be rather uncertain, the restaurant and bars sector continues to defy the rest of the economy with steady and consistent growth.’
• This has been both at the absolute level (pretty obviously given the level of new openings) and LfL (at least for the most part).
• However, that’s the past & it may be the future that we’re more interested in.
• And here, whilst we agree that the underlying fundamentals are broadly positive, new entrants may continue to be something of a problem
• Innovation remains key with BDO saying ‘as some chains diversify to cater to changing consumer habits, other pub chains are having to revise their models and become more innovative’.
• Re the NLW, BDO says ‘the next six months will see a period of focus on operating margins as wage costs increase’. It says more positively ‘the flipside of this is that consumers have more disposal income and this coupled with the National Living Wage putting more money in consumers’ pockets mean the sector should continue to outperform the wider UK economy.’
• Re the future, BDO says we could see more transaction activity in 2016 but says ‘pricing will not be excessive.’
• BDO names a number of chains that may change hands and we would suggest that it will be interesting to see whether any buyers – other than rival PE houses – emerge for these assets.
• Interesting also, BDO speculates on whether one or two of the more fashionable grab-and-go chains have legs. It says ‘their respective estate sizes are still relatively small and unproven beyond their London/City heartlands’. This puts a question-mark over roll out potential.
• Overall, we’re not sure of the specifics but there’s one thing we are sure of, that’s that 2016 is going to be another year in which we are likely to have to work for our living.
Weather & the pubs:
• Langton has been standing outside pubs this week, would you believe, and it hasn’t been alone.
• The balmy weather (as well as that little thing called Christmas) has brought people out in droves and standing outside, in c15 degrees, has been a realistic option.
• Overall, despite the general retailers telling us that the weather hasn’t done much for the sales of overcoats and pullovers, this should have been helpful for the on-trade.
Xmas on a Friday:
• Christmas is a week today and, whilst the fact that it falls on a Friday means that what would have been a big day in any case is taken out, it does mean that there is a frantic build up to the day itself.
• Mad Friday (today) is also likely to be big but, with many people working Monday, Tuesday, Wednesday and even Thursday (at least the morning), there should be plenty of chances to capitalise on the public’s
Random information, hopefully not all of it useless:
• Carnival figures later today.
• Paris hotel occupancy pretty poor in the days following the Friday 13th attacks. London was down in sympathy and, over time, it’s going to be hard to disaggregate terrorism-related worries from any potential wider slowdown.
• Well what do you know, Ocado is opening a physical store. Amazon has recently opened a bookshop. Before long, pubs will be coming together into chains and opening breweries.
• Retail Week has suggested that Black Friday has become a big deal. It says ‘Christmas is now a season with two peaks and an inevitable valley in between – a valley that will be as tricky to navigate as the spike in activity either side’.
• Markets more robust than initially imagined this morning. Two day rally looks broadly secure. Year still a bit of a pig in terms of overall performance.
• Oil cheap, commodities cheap, little change.
• Sterling down vs US$. Impacts price of oil & other commodities.