A Day in the Life:

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

So, as when a website tells me that it’s obligatory that I give them my date of birth I put down 1 January, I got a lot of emails during New Year’s Eve and New Year’s Day.

And, though it was initially surprising to be congratulated on something that is still a number of weeks away, I gradually realised why this was and remain somewhat pleased with myself for declining to give my mobile telephone number.

Because getting an email telling you that you should be planning for your family’s future now you’re getting to be of a certain age is one thing but getting an unsolicited mobile phone call at 2am on 1 Jan suggesting that you should be planning your own funeral would be quite another.

Anyway, though we’ve yet to hear from the majority of operators, Christmas suddenly seems like a long time ago. On to the news:

The News:

Pub, Restaurant & Drinks Producer News:

• Xmas trading. So what to say if those that are talking say it was great but most people aren’t talking?

• Xmas trading. Suggestions that it was late but that it did happen. Was perhaps consistent with slowing 2015 trend

• Xmas deemed good but not fantastic. Some bright spots but the best performers may understandably be the noisiest.

• Camden Levy to be introduced 29 April if approved by full council.

• 55% Diageo-owned United Spirits, India’s leading spirits company, is to hold EGM to comment on its position. Shares down by >80% over four years.

• Soft drinks co Radnor Hills is to almost double capacity to meet demand for healthier alternatives to sugary juice concentrates. Co currently produces c180m bottles of water, flavoured spring water and fruit-based tonics per annum but it is to take this up to 300m post a £4.5m investment in its bottling lines. The Telegraph quotes the co as saying ‘our industry is dominated by enormous players – we are like the mouse that’s running though the elephant pen. We’ve become much more than a water company. Fruit juice has been having a problem because of the negative press about sugar, but not the ones we’ve been involved with. Our quality control is good and we’re priced at the right level.’

• PwC has increased its estimate of the economic impact of the three storms that caused severe flooding in Britain in December for the third time in a week to £2bn-£2.28bn. The consultancy warned that the full cost of the effects of Storms Desmond, Eva and Frank could grow further still as many flood alerts are still in place.

• King’s Cross is to get more premium space for restaurants and bars with the launch of a new canal-side area designed by Thomas Heatherwick, called Coal Drops Yard. The new space will open in 2018 and will house around 65 units including five anchor spaces. Morwenna Hall, senior projects director at Argent (King’s Cross), said: ‘Coal Drops Yard has been designed to be a shopping experience unlike any other. The design by Heatherwick Studio is a considered response to the important Victorian industrial buildings from the 1850s; in fact, the ability for future visitors to the Coal Drops Yard to appreciate the history and various functions of these buildings has been fundamental to the design process.’

• Contactless spending in pubs has nearly doubled since the limit was increased from £20 to £30 in September, according to Barclaycard data. Pubs led the pack, with spending up 92%, compared to a 51% rise in spending by contactless in restaurants and a 62% increase in fast food sites. Managing director Paul Lockstone said: ‘In 2015 we’ve seen contactless become an even more popular way to pay for small transactions, so much so that we can even get frustrated if a retailer doesn’t offer “touch and go” as an option. As the consumer appetite for new ways to pay continues to grow, particularly with the upcoming launch of high value payments and the continuing growth in wearable payment devices, we’re expecting 2016 to be another recording breaking year for contactless.’

• Fuller’s is to launch a new keg beer, a 5.3% India Pale Ale. Brewing director John Keeling says ‘I am continually delighted by our ever-extending keg range, it’s important that whatever the format, our beer has the best, most natural flavour. It’s also great that our UK market can now enjoy IPA alongside our cask and bottled IPA as well as Bengal Lancer.’

• SSP has applied for licenses to sell alcohol in its Burger King sites at Victoria, Paddington and Fenchurch Street Stations, writes M&C.

• Diageo has completed the sale of its US based Chateau and Estate Wines and the UK based Percy Fox businesses to Treasury Wine Estates. The Australian wine producer’s CEO, Michael Clarke, said the deal is a ‘game changer’ that gives Treasury ‘an immediate opportunity’ to grow in the US, Canada, Asia and Latin America. Diageo has been busy offloading other non-core businesses, including its Argentine wine business to Gupo Peñaflor (to be finalised this year) and $780m of brewing assets in Jamaica, Malaysia and Singapore to Heineken.

• Carlsberg has raised DKK600m (US$87.4m) towards its cost-rationalisation programme through the sale of a plot of land north of Copenhagen. The disposal is in line with the company’s stated aim of disposing non-core assets and reducing leverage.

• Figures from the Bank of England show the amount of money being borrowed by consumers in November rose by £1.5bn to £178.2bn. The monthly increase is the largest since February 2008 as consumers spent more, with retail sales volumes up 5% compared to the same month in 2014.

• Anecdotal evidence suggests convenience stores have enjoyed a generally good start to 2016 thanks to solid sales over the Christmas period. Sales at Saqib Ghafoor’s Bargain Booze Select Convenience in Northumberland were up 10% after seeing a rise in last-minute customers on Christmas Eve and New Year’s Eve.

Leisure Travel:

• Kuoni confirms takeover approach. Says has ‘received preliminary approaches from 3rd parties regarding a potential offer.’ It says ‘discussions are at a preliminary stage and there can be no certainty at this stage that an offer will be made, nor as to the terms on which any offer might be made.’ It adds ‘the Board of Directors is evaluating the situation, also taking into consideration all other strategic possibilities’ and says ‘the measures to accelerate the implementation of the strategic direction, communicated 5 November 2015, are unchanged. It is the Executive Board’s task to develop the operational businesses of all divisions as communicated.’ Kuoni concludes that ‘further information is not available at present and would be given as and when appropriate.’

• Travel Supermarket has said German holidaymakers are more healthy and active when holidaying abroad. It says Brits are 3x as likely as a German holidaymaker to return from holiday with a hangover. Some 82% of German tourists say they always enjoy their trips abroad vs only 61% of Brits.

• Carnival has placed an order for four new cruise ships, two of which will be based in China under its Costa Asia brand. The group has signed an agreement with Italian shipbuilder Fincantieri for 17 new ships between 2016 and 2020.

• Paris hotels have seen New Year reservations tumble 30% as the impact of the 13 November terrorist attacks continues to be felt. Evelyne Maes, president of the Umih union for the Ile-de-France region covering the capital, said that hoteliers had ‘also seen last-minute cancellations’. Hotel reservations took around three months to recover from the Charlie Hebdo attacks.

• The US hotel industry could be in for an eventful 2016 due to ‘enormous investment demand’ around the world for hotel properties on both coasts and in major cities. Daniel Lesser of LW Hospitality Advisors added: ‘Increasing sums of foreign direct investment in the US lodging sector, which shows no signs of let up, has led to select transaction prices continuing to exceed prior record levels.’

• The US hotel industry saw occupancy fall 4% to 42.8% y-o-y for the week ending 26 December, while ADR was down 1.7% to $108.34 and RevPAR fell 5.6% to $46.37. Hotels in Canada also saw declines in two of its three key metrics, with occupancy down 6.5% to 33.1% and revenue per available room slipping 5.4% to CA$45.06 ($32.48). Meanwhile, average daily rate increased 1.2% to CA$136.32 ($98.25).

• Las Vegas enjoyed a record-breaking year in 2015 in terms of visitor numbers, attracting more than 42 million guests. The data comes courtesy of the Las Vegas Convention and Visitors Authority and, if proven correct when the official figures come out, will mark only the second time the city has broken the 40-million-visitor mark.

Other Leisure:

• Bwin updates on FY trading, says Q4 revenues +5% on last year ‘driven by sports betting and casino’. Says it has seen ‘strong growth in mobile driven by further product enhancements.’

• Bwin says re Q4 ‘excluding the impact of EU VAT, the underlying increase in net revenue was 8%.’

• Bwin says has made ‘continued significant progress on cost savings’ and ‘one-off receipt of circa €10m expected to be received in Q2 2016 through Kalixa on sale of Visa Europe to Visa Inc.’

• Bwin confirms recommended offer from GVC expected to complete on 1 February 2016, subject to the prior approval of the Court of Gibraltar.

• Bwin outlook says ‘underlying fundamentals remain strong with further product enhancements, the Euro championship and the full year benefit of cost savings expected to drive growth in 2016.’ It says ‘the Board believes that the Group’s prospects are strong, and these will be enhanced yet further by the proposed combination with GVC Holdings PLC.’

Finance & Markets:

• UK manufacturing PMI showed growth at slowest rate in 3mths in Dec. PMI recorded 51.9 in Dec from 52.5 in both Nov + Oct. Any number > 50.0 indicates growth but Markit said it marked a “disappointing” end to the year. It said ‘this suggests that industry will make, at best, only a marginal positive contribution to broader economic growth in the final quarter of the year.’ Markit adds ‘although this would be an improvement on the second and third quarters, it does also suggest that manufacturing output over 2015 as a whole may be below the level achieved in 2014.’ Again, the result is consistent with the view that 2015 saw a slowdown in the pace of economic recovery.

• World markets. UK, Europe + US followed Far East in registering falls on first full day of 2016 trading. Asia further down in Tues trade

• Oil up from its lows but down over last 24hrs or so. Trading at around $37.50 per barrel after having hit around $37.20

• US manufacturing contracted further in Dec with PMI at 48.2 vs 48.6 in Nov. A number < 50.0 implies contraction. Manufacturing now comprises only c12% of the US economy as a whole.

Retail Roundup from Nick Bubb:

Next:
The recent sector weakness has taken the Next share price down from a peak of 8175p in early December to just 7190p, little more than 3% above the self-determined share buyback limit of 6962p, so there was considerable interest ahead of today’s trading update in whether Next would be able to hold their sales and profit guidance for y/e January in the face of the tough pre-Christmas conditions on the High Street…And the answer is that sales for the 60 days to Dec 24th were well below forecasts, both for Retail and Directory, and it is a relief that the full-year central profit forecast is only edged down slightly to £817m, thanks to good control of costs, stocks and gross margins. At least Next traded full-price pre-Christmas, unlike all their competitors, but the mild weather is mainly blamed for the sluggish 0.4% rise in total Next Brand sales and Next have overlaid the
year-on-year shift in the temperature on by their now traditional weekly sales graph for the period…The most interest, however, will be in Next’s admission that Directory’s disappointing sales were compounded by poor stock availability from October onwards and that, in addition, “the Online competitive environment is getting tougher as industry-wide service propositions catch up with the Next Directory”. To soften this blow, Next is paying another 60p special dividend and it has maintained its share buyback limit at £69.62, on which basis Next will no doubt be in the market today supporting the price after the inevitable early mark-down…

Marks & Spencer: Ahead of tomorrow’s Q3 sales update from M&S, we expect Food LFL to be little more than flat, despite all the hype about “strong” Food sales. But the main focus will be on General Merchandise and given the very soft Online comps we don’t think sales will be worse than -3% LFL (the range is -1% to -5.5%), although that is still pretty poor, notwithstanding the tough pre-Christmas environment in Fashion retailing. And given increased discounting, we wouldn’t be surprised to hear a bit of disappointment on the gross margin front, all of which may put a bit of pressure on full year M&S profit forecasts. One key figure to look out for will be the ex-Online General Merchandise LFL sales outcome for Stores in the period, which, assuming Online sales were up by more than 20%, could be as bad as -7%/-8%.

John Lewis Partnership:
Before M&S announce their Q3 sales (for the 13 weeks to Jan 2nd), the John Lewis Partnership will report tomorrow morning on how the 6 weeks to Jan 2nd turned out for both John Lewis and Waitrose. As far as we can judge, the last 6 weeks have seen the sales trend improve a bit for John Lewis, thanks to an acceleration in the rate of Online sales growth to c20% and a pick-up in Electricals sales growth: overall we look for gross sales up 3.7% over the Christmas period for John Lewis, which would be about +2% LFL. That performance looks very respectable, but with Online sales penetration now topping 40%, it would translate into about -5% for Store LFL sales, which has adverse P&L implications…Over at Waitrose we think that the last 6 weeks have seen the sales trend slow slightly: we expect gross sales to be up by only about 1.4%, despite the new store openings, implying
nearly 1% down LFL. 

2016 Tip:
A year ago we were not too hopeful of repeating our 2014 triumph with Dixons (which saw a 48% increase in old Dixons rolled into the newly merged Dixons Carphone), but we actually did pretty well with our “Tip for 2015” in the shape of Howden (which was up by a handsome 31%, even though it hasn’t yet got into the FTSE 100 index). In terms of 2016, we are more interested in “short positions”, but by tradition our Tip is a long position, so here goes…Picking a big 2015 laggard/takeover target, like Home Retail or Morrisons is tempting, because, for example, SuperGroup turned from being a 2014 laggard into a big 2015 winner. And M&A activity might increase this year. But our strongest feeling is that it would be generally best to avoid a “store based” retailer, given the rapid channel shift from the High Street towards Online in recent
months, which steers us towards an Online play for 2016…Having seen the recent re-rating of ASOS and noting that Boohoo remains relatively cheap against ASOS, our selection is Boohoo at the Dec 31st close of 37p. Assuming that the trading update on Jan 12th provides reassurance about December trading, notwithstanding the unhelpfully mild weather for selling Fashion outerwear, there should be upgrades for y/e February profit forecasts and a re-rating, so come on you Boohoo. 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:

Evolution – drinking:

• Today’s tweets include stories on 1) the dry-January brigade gaining momentum, 2) drinking limits being tweaked (on would imagine downwards) and 3) older drinkers imbibing more than their younger peers.

• All of which suggests to us that evolution is alive and well and that the only constant remains change.

• That said, so what?

• Well quite a lot, actually, because it’s not an option for operators to stand still.

• Of course there will probably be some demand for vertical drinking retro-outlets in 50yrs’ time – but just not that many of them.

• So better operators continue to evolve and, and get this, new entrants don’t have to lug around the baggage being carried by their more-established rivals.

Evolution – spending habits:

• We also comment on reduced High Street footfall.

• This (down 3%) may be down to more retail parks (up 3.6%) or more online shopping (or both) but it is what it is.

• It suggests that resting on one’s former laurels is not a sustainable option – and this will apply both to the general retailers and to the F&B operators that hope to benefit from their footfall.

• It’s better news for retail-park operators.

• And it also plays into the hands of some operators who make the valid point that it is sometimes only the late night economy that is keeping some High Streets alive.

Evolution – other:

• Amazon said to be set to make loans to customers. Who said the catalogue or HP model is dead? They’ll be opening a bookshop next. Ah, they already have – what goes around comes around.

• What next, pub companies opening breweries? 

• Aldi is reported to be set to accelerate its store opening programme in the UK 2016.

Recent history, the markets in 2015:

• Interestingly the FTSE100 fell by 4.9% last year whilst the mid-250 rose by 9.2% and the small cap index was some 9.9% to the good

• Just shows that disaster-avoidance (no miners, no oils) can be every bit as important as picking winners when it comes to securing performance

Random information, hopefully not all of it useless:

• Lower petrol & diesel prices and modest increases in train fares this year will help to keep money in consumers’ pockets.

• Telegraph speculates that Morrison’s could be bid for by private equity.

• M&S Xmas numbers on Thursday. Observers speculating that it will not have performed very well. The Sunday Telegraph suggests ‘M&S to reveal suffering from retail’s toughest year.’

• China suspended limit down, having the expected impact upon mining and resource stocks. Hurtful also for exporters, etc.

• Sterling somewhat weaker vs US$. Anticipation that US interest rates may rise 2, 3 or 4x before they rise in the UK. Will put a little upward pressure on prices but, in the current environment, inflation is perhaps more of a wish than a fear.

• Oil still very weak. Saudi vs Iran spat may add a little upward pressure into the mix.

• Cattle prices a little firmer, some upward pressure on red meats. Otherwise most commodities, softs and metals, still weak.

• El Niño-impacted commodity prices the exception to the weak trend.

• With the warmest December in many a year just behind us, it’s worth looking at a couple of recent headlines. Check – Express forecasts mega-snow, gets it wrong.  

• Joking apart, mean reversion is a major concern. Averages are only averages because temperatures equalise either side of the mean. Colder weather is arguably more rather than less likely.