A Day in the Life:

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

So I think that satnavs have a lot to answer for.

Because, useful though they may be when you’re trying to find Church Street or High Street in an unfamiliar town (I used to just look for the tallest spire when I was branch-visiting during my auditing days), they don’t have a lot going for them in terms of idiot-proofing.

Hence a number of nameless individuals – not me as I must have made the journey 500 times or more – when driving from Hull to York, found themselves crossing the Humber Bridge heading south – and that’s just not right.

However, after a quick tootle around Lincolnshire, they realised that that they had tapped ‘home’ into the satnav (last used in Tenerife) and it had planned a c2,000 mile, three-day journey for them including tunnels, ferry crossings and a sojourn somewhere near Mount Teide.

Hence that journey got knocked on the head with very little damage done (save for the 2x £1.50 bridge tolls) but, the next time they used it, it took them via Howden, Selby and the like presumably under the impression that Arras Hill was closed by snow.

So thanks for that. I think the things must be programmed by the petrol companies. On to the news:

The News:

Pub, Restaurant & Drinks Producer News:

• Horizons has suggested that overcapacity in the market is slowing growth. It says ‘overcapacity in the UK’s eating out market is likely to slow growth in the sector in the longer term by putting downward pressure on like-for-like sales, while competition amongst operators for new sites will continue to intensify.’ The analyst goes on to say ‘relentless growth amongst group operators has driven outlet numbers upwards, largely offset by a drop in independently-run businesses.’

• Horizons points to increased capacity across food-led pub sector. Says ‘over the past decade growth in the number of food-serving outlets has been strongest in the pub sector where operators have moved primarily from wet-led sales to food-led.’ It suggests that the number of pub restaurants in the UK whose food sales exceed their wet sales has grown from 2,600 in 2001 to 6,100 in 2014.

• Chain restaurant numbers risen from 7,700 outlets in 2001 to 11,900 in 2014 reports analyst Horizons. It says ‘it is difficult to see how this level growth in food outlets can be sustained in the longer term’ and adds ‘competition amongst operators means there will be a struggle to improve like-for-like sales across the sector, keeping menu prices fairly flat and margins low.’

• NLW to be a major feature in 2016 reports Horizons. Says 2016 Olympics could boost delivery companies. Horizons’ Peter Backman says ‘the year ahead is likely to be a challenge for operators with competition at its most intense. Those that maintain their quality, keep their menus fresh, their prices competitive and adapt to changing demand will emerge the winners.’

• Majestic Wine updates on Xmas trading, says has seen 12% pro-forma sales growth that ‘supports 3yr transformation plan’.

• Majestic Wine. Reports on 10wks to 4 Jan (30% of year sales) saying total growth (incl. Naked Wines) was 42.6%

• Majestic. LfL sales +7.3% ‘supported by the previously indicated strategic investments to reinvigorate sales growth’. Says ‘as expected these investments resulted in higher costs and a slightly lower percentage gross margin during the period.’ CEO Rowan Gormley reports ‘this is an encouraging result. Majestic Commercial and Naked Wines continued to grow strongly, and I am particularly heartened to see the Majestic Retail business grow as the impact of our better pricing, better service and better looking stores starts to take effect. However there is still much to do. We are only three months into our three year plan and although this performance is pleasing it is too early to call it a trend.’ He concludes ‘we remain focused on our values of looking after our brilliant teams and suppliers and thank them for their support during the initial
steps of transforming Majestic into a truly fantastic business.’

• Oakman Inns and Restaurants reports LfL sales to end-Q3 +6.2% including an 11.8% rise in December. Warm weather helpful.

• London operator Kornicis has reported LfL sales up by 7% in its Q4, including a rise of 10% in December

• Pieminister has increased sales by 21% in its year to end-March.

• MD of New World Trading Company, Chris Hill, has said there is the potential for ‘hundreds’ of Botanist sites. The company is on track to open its 14th Botanist unit before its March year end and recently reported an 83% full year sales increase to £17.7m on, with adjusted profit up 58% to £2.3m. Speaking to M&C Hill said that as expansion goes, ‘The next logical step is to move west and we are looking strongly at places like Cardiff, Bristol and Bath.‘

• AB InBev has promised to present full nutritional and calorie information on 80% of its beer packaging by the end of 2017. Anna Tolley, UK legal and corporate affairs director for AB InBev, commented: ‘While the EU continues to discuss the best way forward for nutritional labelling in our industry, we want to give consumers the information they need at their fingertips to make well informed choices and enjoy our products responsibly.’

• Nielsen notes that there are 77 million Millennials in the US, who together will account for almost 30% of total consumer product dollars by 2020. Tastes within the group, however, vary when it comes to alcoholic beverage preference. For example, Millennials 21-34 represent about one-fourth of adults 21 and over, but they account for 35% of U.S. beer consumption and 32% of spirit consumption. Comparatively, they represent only 20% of wine consumption.

Glyn House is to leave Wagamama after spending eight years as operations director and Sarah Hills will become the group’s new UK operations director.

• Cult Wines is set to open a new office in Hong Kong to take advantage of rising demand in Asia for fine wine. The group manages private and trade client portfolios on behalf of more than 1,800 clients across 55 countries. Assets under administration are around £30m with the firm aiming for sales of around £25m next year and £50m by 2020. Hong Kong accounted for 30% of the $352m of wine sold at auction in 2014.

• MKS updates on Xmas trading, jettisons CEO marc Bolland. See Nick Bubb comments below.

• Poundland Q3 sales rose 29.4% ex-Spain and including 99p Stores to £424.9m, although tough trading conditions persist and the number of high street customer numbers has fallen. Total revenue in Spain was £4.5m during the period (2014: £2.3 million), with constant currency growth of 121.9%. The group says it is well-advanced in formulating a multi-price point format to be trialled in its Family Bargains stores. The Group ended Q3 with net cash of £35.4 million (2015: net cash of £33.9 million).

• Poundland: Meanwhile, its acquisition of 99p Stores is described as: ’principally a property deal for the Group, adding 40% to our estate and nearly 160 stores in the South of England,’ which will allow continued expansion. Poundland opened a net 14 stores in the UK and in Ireland during Q3 which takes its total

• Commenting on Poundland’s performance, Chief Executive Jim McCarthy, said: ‘I am very encouraged by the sales uplifts of converted 99p Stores and by the speed and efficiency of the conversion process. I expect the store conversion programme to be substantially complete by the end of April and still expect to generate incremental EBITDA of at least £25 million from the transaction. In addition, we remain on track to open around 70 net new Poundland and Dealz stores in the UK and Ireland in the full year.’

Leisure Travel:

• Monarch CFO Barry Nightingale is to leave the company at the end of this month reports TTG. Mr Nightingale, who has been in the role for a year, will be replaced by his deputy, Chris Bennett. Monarch CEO Andrew Swaffield comments ‘over the last year, Barry has led his team to ensure that the business turned a corner financially, making considerable contributions to our financial strategy and ensuring that long-term aims are achieved. I would like to take this opportunity to wish him the very best for the future and thank him for his contribution to the business.’ Nightingale is to “pursue new challenges”.

• Rising hotel prices, cost-cutting and GDS content are the top concerns for business travel buyers in 2016, according to the Travel Show forecast.

• A record 12.3 million passengers used Luton airport in 2015, making it the busiest year in its history.

• London City airport also handled a record 4.3 million passengers last year, up 18% on 2014, making it the fifth year of consecutive growth.

Other Leisure:

• Merlin-owned Alton Towers is to open the first ‘Rollercoaster Restaurant’ in the UK. Food will be delivered via rollercoaster tracks. Alton Towers reports ‘the intricate network of loops and spiralling tracks is an incredible spectacle and we feel that the new restaurant is an attraction in itself.’

• Merlin food delivery. Rollercoaster food, how’s it going to work with soup, coffee? The splash-zone could be pretty interesting.

• Netflix now offers services in an additional 130 countries. Material exceptions include China, North Korea and Syria

• Camelot has said a record National Lottery jackpot of £50.4m led to a surge in ticket sales. Nobody won last night. Prize must be shared out on Saturday

• The British music industry thrived in 2015 thanks to a huge rise in streaming and a resurgent vinyl industry. A total of 26.8 billion songs were streamed last year, a rise of 82%, according to trade body BPI, while vinyl sales jumped 64% to 2.1 million. Overall, the retail value of UK music rose from £1.03bn in 2014 to £1.06bn.

Finance & Markets:

• Oil price hits new 11yr lows, trades below $34 per barrel. Currently trading at around $33.50 per barrel. US stock levels higher

• UK service sector growth slowed slightly in Dec with the Markit/CIPS PMI falling to 55.5 from 59.9 in Nov. Any figure >50.0 indicates growth. Markit said ‘the services sector remained the key driver of the UK’s economic upturn in December, helping to offset the recent weakness seen in manufacturing and putting the economy on the starting block for another year of 2 to 2.5% growth in 2016.’

• Markit says its PPI numbers suggest 0.5% GDP growth in Q4, down on earlier estimates of around 0.6%

• Eurozone economic growth picks up a little, PMI composite for Dec rises to 54.3 from earlier estimate of 54.0. Markit said ‘the Eurozone economy starts 2016 on a solid footing.’

• Fed minutes show the decision to raise rates last month was a close call. The minutes stress that further rises will be ‘gradual’. The minutes report ‘participants emphasized the need to adjust the policy path as economic conditions evolved and to avoid appearing to commit to any specific pace of adjustments’.

• UK new car sales are likely to have hit an all-time record in 2015 last year. The SMMT releases official figures later today

• World markets: UK tumbled yesterday on miner weakness + Korean bomb testing. Europe + US down, China down in Thurs trade

• China share trading suspended (again) after index lost 7.3% during Thursday trading session

Retail Roundup from Nick Bubb:

Marks & Spencer:
Ahead of today’s much-awaited Marks & Spencer Q3 trading update (for the 13 weeks to Jan 2nd), the share price has been oddly firm over the last couple of days, despite the Next warning, as if the news just might, as usual, defy the worst expectations…And the good news is that Food LFL sales were a little more than flat, up 0.4%, whilst there was no disappointment on the gross margin front, and so there is no M&S profit warning, thanks to M&S finding some cost savings to pluck out of thin air (a lot of which are volume related, however). But the main focus will be on the disastrous General Merchandise sales and the unexpected but related departure of CEO Marc Bolland…Given the very soft Online comps we didn’t think sales would be worse than -3% LFL (the range is -1% to -5.5%), but GM sales were actually down by 5.8% and the ex-Online General Merchandise
LFL sales outcome for Stores in the period (with Online sales up by a relatively feeble 20%) was well over 8% down. Marc Bolland spoke to the media at 7.10am about his replacement by Steve Rowe, but the analysts call is at 8.45am

Poundland:
Back on November 19th, with the interim results (in which LFL sales were 2.8% down, against tough comps), Jim McCarthy, the always ebullient CEO of Poundland, caused some consternation when he admitted that, because of weak High Street footfall and the warm weather, “we have seen highly volatile trading conditions so far in the third quarter. The quarter’s performance therefore depends more than ever upon the last six weeks’ trading towards Christmas”, so expectations were suitably depressed ahead of today’s Q3 trading update (for the 13 weeks to Dec 27th)…But December seems to have improved, if the outcome is +6% gross for Poundland ex 99p Stores (no LFL figure is given) and Poundland say that “Despite these conditions, as a result of strong cost and margin control, we expect pre-tax profit for the year to March 2016 to be towards the lower end of the
range of market expectations”. There is a 9.30am conference call.

Next Share Buyback Watch: We flagged yesterday that, with the shares below the £69.62 share buyback price limit level for the first time in ages, the notoriously shrewd “Mr Share Buyback Man” at Next burst into action on Tuesday, picking up c£40m of stock, and he was again active yesterday, hoovering up c£26m of stock at an average price of £68.71. Nick Bubb – nicholas_bubb@hotmail.com

Wednesday 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:

Pub properties:

• Fleuret’s suggests that the programme of major disposals undertaken by Greene King, Marston’s, Punch, Enterprise and others is essentially over

• Hence disposals will be much more selective going forward

• Average values are up 5% plus but, as Fleuret’s is suggesting that the average quality of units being sold is now rising, this may not be comparing apples with apples

Property, specifically London:

• Fleurets puts a positive spin on it when it suggests that high London pub prices are incentivising operators & property-owners to look to the regions for a better deal.

• Nationwide suggests the salary multiple re residential housing in London is out of kilter with the historic norm

• Great Portland Estates yesterday sold its 60 Great Portland Street site for a price of GBP102.15 million representing a net initial yield of 3.89%.

• Maybe we’re badly off the ball but we consider that it’s hard to suggest that the yield on London properties should be much below the level at which the professionals are selling

Oil – price outlook:

• Big brains are gambling billions on getting this right.

• Langton doesn’t have a big brain and is 9-10 zeroes behind the big boys in terms of financial fire power – but that doesn’t mean we don’t have an opinion.

• Oil’s now trading below $37 and that’s rather a big deal.

• We keep seeing headlines suggesting ‘oil price off the bottom’ but it’s on a declining trend and the ‘bottom’ keeps edging down.

• The headlines could just as easily refer to new lows.

• Saudi may be punishing the fracking industry but now we have an Iran – Saudi situation that could incentivise the former to re-enter the world oil market in a major way in order to upset their various Sunni rivals

• Add in the China slowdown and you have the makings of a weak price for some time to come.

• And yes, we do know that 1) North Korean explosions may push prices in the opposite direction and 2) speculative trading is likely to dwarf ‘real’ volumes but, at the end of the day, speculation is driven by an appreciation (right or wrong) of the fundamental situation

Random information, hopefully not all of it useless:

• Tunisia extends state of emergency. A kind of ‘emergency creep’. It’s not likely that it will be back as a holiday destination for some time yet

• Sainsbury – Home Retail. Is that really such a good idea?

• Halo slips a little further, John Lewis has announced that Waitrose was disappointing at Xmas. It reports LFL sales down by 1.4%.

• Online still in growth, John Lewis department stores’ online sales up by as much as 21% up to comprise 40% of total sales.

• Pound down slightly vs US$, up vs Euro. We get to see the Fed’s minutes later today. Shouldn’t be anything in them to change the view that there will be 4x rate increases this calendar year.

• Milk price off the bottom. Cocoa price off the top. Quite what that means for milk chocolate, we’re not sure.

• Retail stocks weak yesterday with the obvious exception of Home Retail Group. Elsewhere Dixon’s downbeat comments re the warmer-than-average winter weather outweighed any bid-spec. Sainsbury, Next, Burberry, AB Foods, Supergroup, AO World and Poundland were amongst the major losers. Quite why Kingfisher rose ‘in sympathy’ with Home Retail Group, we don’t know.

• Brexit concerns overdone? Bookies have us 2:1 to leave, 2:1 on to stay in. Looks like game-over.