Langton Capital – 2016-01-07 – Daily Wrap: Capacity, oil prices, MKS, costs & other:
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:
Capacity & the UK on-trade:
• See earlier email for detail. Horizons’ article – here
• We have been suggesting for a while that, in an innovative industry with limited barriers to entry, new entrants were always likely to be an irritant (or something more serious) to established players
• M&B has said ‘we’re the market leader, we’re there to be shot at’ and operators such as Reds and Franco Manca are capable of doubling their outlet numbers over a 3yr view
• And there are few secrets
• If food is the future for pubs, then pubs will introduce food – see the HRZNS numbers.
• Of course this is 1) not a surprise and 2) not new news.
• And even if it were new, it wouldn’t change the necessary competitive response from incumbents, which is to keep your pencil sharp on prices & offer your customers (and more importantly your would-be customers) a good product that they want to consume at a price that they are willing to pay.
Oil prices, impact on the consumer, etc.
• Perhaps the Goldman target of c$20 isn’t so unlikely after all.
• Trading at around $33 (and with the gap between West Texas and Brent at near zero), we’re in new trading territory.
• Prices were at $100 little more than a year ago.
• Lower prices are clearly good for transport stocks – including the holiday operators.
• Many of these companies will have locked in their fuel needs for summer 2016 but, as the spot price carries on falling, any top-ups will be at lower prices and, at some point, the operators will lock in FY17 and beyond.
• The shenanigans (established oil producing countries vs the shale-oil frackers, Iran vs Saudi etc.) may be of only passing interest to the holiday companies’ bean counters, all of whom will be trying to produce packaged holidays at a price that maximises profits
• Global moves may be of even less interest to the average motorist but, with prices now below 100p per litre and surely set to stay there for some time, there must be more money left for the average family at the end of the week
• It’s marginal stuff but each 3p move in the price of a litre of petrol moves the family budget by around £40 p.a.
• To the extent that the price of oil impacts 1) shops’ delivery costs and 2) the cost of gas (and other energy), the move may be a factor of 3-4x that given above.
• It’s worth bearing in mind that this move will work both downwards and, in due course upwards
Random information, hopefully not all of it useless:
• Poundland shares down. Am I missing something or is the business model straight-jacketed by that word ‘pound’? Prefer B&M. Chart below shows Poundland has not been the world’s greatest IPO. Share chart was struck yesterday, shares now down another 23p (down 12%) to trade at c169p.
• M&S at one point the only FTSE100 stock in positive territory. And that after worse than expected Xmas General Merchandise numbers and the jettisoning of the group CEO. A reverse instance of ‘it’s better to journey than arrive’?
o M&S. For the record, online sales were +20% (vs John Lewis +21% but from a higher base) and GM store sales were down LfL by more than 8%.
• The market? Well, it’s not very good, is it?
• Sterling modestly lower against the green-back. Will impact commodity prices but, as they’re all falling, the net-net impact likely to be minimal.
• Commodity prices still low. Higher prices (e.g. cocoa) moving lower.
• Input soft commodity prices still sliding. Corn prices down 9% on the last year (after failed bounce) and soybean prices (down 18% on year) apparently heading to zero. Best advice, buy at one.
• Gold said to be ‘bouncing’. But frankly you’d need a magnifying glass to work this out. Still down 14% over last 12mths
We’re so 21st Century, this morning’s Tweets (diff. font size denotes importance):
1. Horizons points to capacity increases. Number of pubs in UK whose food sales exceed wet has grown from 2,600 in 2001 to 6,100 in 2014.
a. Chain restaurant numbers risen from 7,700 outlets in 2001 to 11,900 in 2014 reports analyst Horizons.
b. NLW to be a major feature in 2016 reports Horizons. Says 2016 Olympics could boost delivery companies.
2. Majestic Wine updates on Xmas trading, says has seen 12% pro-forma sales growth that ‘supports 3yr transformation plan’.
a. Majestic Wine. Reports on 10wks to 4 Jan (30% of year sales) saying total growth (incl. Naked Wines) was 42.6%
b. Majestic. LfL sales +7.3% ‘supported by the previously indicated strategic investments to reinvigorate sales growth’.
3. MD of New World Trading Company, Chris Hill, has said there is the potential for 00s of Botanist sites
4. M&S updates on Xmas trading. Food good, GM bad, CEO Marc Bolland to leave the company.
5. Monarch CFO Barry Nightingale is to leave the company at the end of this month reports TTG.
6. Rising hotel prices, cost-cutting + GDS content are the top concerns for business travel buyers in 2016, according to Travel Show forecast
7. Record 12.3m passengers used Luton airport in 2015. London City airport also handled a record 4.3m passengers last year, up 18% on 2014.
8. Merlin-owned Alton Towers is to open the first ‘Rollercoaster Restaurant’ in the UK. Food will be delivered via rollercoaster tracks
a. Merlin food delivery. Rollercoaster food, how’s it going to work with soup, coffee? The splash-zone could be pretty interesting.
9. Netflix now offers services in an additional 130 countries. Material exc. China, North Korea and Syria
10. Camelot says record National Lottery jackpot of £50.4m led to a surge in sales. Nobody won last night. Prize must be shared out on Sat
11. The British music industry thrived in 2015 thanks to a huge rise in streaming and a resurgent vinyl industry.
12. Oil price hits new 11yr lows, trades below $34 per barrel. Currently trading at around $33.50 per barrel. US stock levels higher
13. UK service sector growth slowed slightly in Dec with the Markit/CIPS PMI falling to 55.5 from 59.9 in Nov
14. UK new car sales are likely to have hit an all-time record in 2015 last year. The SMMT releases official figures later today
15. World markets: UK tumbled yesterday on miner weakness + Korean bomb testing. Europe + US down, China down in Thurs trade
a. China share trading suspended (again) after index lost 7.3% during Thursday trading session