A Day in the Life – A Comment on Technology:

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

We bang on about evolution across the F&B markets endlessly but technology is pervasive, isn’t it?

I used my card to make a contactless payment yesterday (no PIN, no signature, done in 10 seconds) and, in addition to this smoothing transactions, at least those below £30, there’s no reason to buy an Oyster card ever again.

In addition, just a few observations:

• Do we need to use the word ‘smart’ when describing phones? I mean who last bought one, other than to transact some shady drug deal, that didn’t have all the bells and whistles?

• I lost my cheque book over a year ago. And I haven’t missed it.

• I wrote a letter over the weekend. In common with many other people, I’m sure, I overwrote the last one I’d produced in order to keep the headers. And I noticed that it was dated December 2014.

• Even I tent to text things. I’m developing callouses on my thumbs.

• I haven’t bought a map in more than 3yrs. Thanks Google.

• The dog ate the Yellow Pages. And I didn’t notice.

• The lads use Uber, Airbnb, Deliveroo and Just Eat. They’re all on my to-do list.

Anyway, we could go on. But let’s leave it save to say that change is the only constant, to stand still is to, well, not an option.

And, apropos of nothing but whilst we’re talking about tech, I’m reading my first ever Isaac Asimov book at the moment and fascinating stuff it is too. Sadly the interstellar travel remains a pipe dream but the personal tech that we have now is streets ahead of that envisaged for the years 2500, 2600 etc. Oh, and by the way, the future people all seem to be irredeemably sexist, to all wear hats, sport moustaches and smoke pipes. On to the news:

The News:

Pub, Restaurant & Drinks Producer News:

• See comments above on technology and also below on the move away from PCs towards tablets & smart-phones

• C&C Group is investing over €10 million into its Clonmel manufacturing site, which will now be responsible for the majority of its production. Clonmel will become the core production and packaging site for Bulmers and Magners cider, Tipperary Water, and the group’s premium beers and ciders. Current capacity utilisation across the three sites is just 34% as a result of the ‘intensely competitive’ UK and Ireland trading environment in recent years exerting ‘significant’ downward pricing pressure, alongside a loss of material contracts for private label water. Consolidating operations under one roof is expected to boost capacity utilisation at the Irish site to 75%.

• Alcoholic ice tea producer Harry Brompton’s is raising cash via Crowdcube. Group has raised £49,290 of a target £300k. The issue values the enlarged company at around £3m. The co says ‘Harry Brompton’s is the world’s first premium alcoholic Ice Tea. Launched in 2013 we have grown rapidly selling nearly 1,000,000 bottles of our award winning teas across 11 countries and are stocked in leading retailers including Waitrose, Sainsbury’s, Ocado, Whole Foods and Harrods.’

• Pull’d, which raised £102k via Crowdcube in the middle of last year, has reported that it had a record sales week in December. It is shortly to launch a new juice range, Squeez’d. Pull’d says that it is ‘inspired by a fresh Australian lifestyle and a love of slow cooked meat’. It adds ‘taking an Aussie approach to good food, Pull’d delivers combinations of flavours, allowing customers to “have it healthy, wholesome or hearty”’.

• The ALMR has appointed Bob Ivell, chairman of Mitchells & Butlers, as President. Steve Richards, chairman of the ALMR, says ‘I am delighted Bob Ivell has joined the ALMR board as our president. He is one of the sector’s most respected leaders, and the depth of his experience makes him a great ambassador for our industry. His commitment reflects the importance of the ALMR, and the role it plays in taking business-critical messages to government.’

• AB InBev is amongst 35 multinational companies being ordered to pay €700m back to the Belgian tax authorities after a tax break was deemed illegal. The EU ruled ‘national tax authorities cannot give any company, however large or powerful, an unfair competitive advantage compared to others.’ He added ‘such schemes put smaller competitors at an unfair disadvantage. They are active in the same markets and have to pay their taxes fair and square, according to normal tax laws.’

• Chris Snowdon of the Institute of Economic Affairs has criticised the new alcohol guidelines for opening the door to more ‘nanny state’ interventions.

• Superdrug has reported strong Christmas results, with online sales up 47% and life-for-like sales up 6.8%. The retailer is planning to open 20 stores in 2016 after opening four in the last quarter.

• Rumours circulate that the government is keen to impose a new tax on sugary drinks in its drive to combat obesity. Critics of the move suggest a tax would hit the poor the hardest and might not be that effective.

• Gregg’s shares fell by as much as 14% yesterday as growth slowed and the company’s value (it is rated at >20x EPS), was reassessed

• Supermarket shares higher yesterday as Morrison’s reassured the market that it had had a (relatively) good Christmas

• Growth at Aldi & Lidl’s older stores in the UK is thought to have slowed per Kantar though total sales still up strongly

Sainsbury trading update:

• Sainsbury’s trading update for the 15 weeks to 9 January shows total retail sales ex-fuel were up 0.8% in Q3 and like for likes were down 0.4%. The number of consumer transactions was up 2.6% year-on-year to 30 million for the seven days leading up to Christmas.

• Kantar Worldpanel had recently suggested a 0.8% growth in total sales for the 12 weeks to 3 January. Tesco, Asda and Morrisons all saw sales declines, according to the panel, (of 2.7%, 3.5% and 2.6% respectively) and all lost market share to the fast growing discounters, again suggesting that Sainsbury’s proposition is more resilient than its rivals.

• The group opened 16 convenience stores and had its best day ever for convenience sales on Christmas Eve. Groceries online sales grew at just under 10% and orders by 15%, achieving a record week in the quarter of delivering over 289,000 online orders. There are now have 101 Click and Collect sites nationwide – a strategy that has proven popular for Carrefour in France.

• General Merchandise grew 5% in the quarter and clothing nearly 6%, despite the unseasonal weather impact and weak updates from other clothes retailers. Sainsbury’s Bank also delivered good performance with 11% volume growth in loans and 29% growth in travel money transactions.

• Sainsbury’s does not update on its ongoing drive to drum up support amongst its own and Home Retail’s shareholders for a bid for the Argos and Homebase owner.

• CEO Mike Coupe credited the performance but warned that challenges remain in the industry, commenting: ‘Given our good performance in this quarter, we now expect our like-for-like sales in the second half of the year to be better than the first. Food deflation and pressures on pricing will ensure that the market remains challenging for the foreseeable future. We will continue to remain competitive on price and our performance this quarter provides further evidence that our strategy is working.’

Leisure Travel:

• easyHotel has announced that it is to build a hotel in Barcelona. The project will be the Group’s first owned hotel outside the UK. Easyhotel says the move ‘is in line with the Group’s targeted European strategy’ and adds ‘the planned 200-room easyHotel is expected to open in 2018.’ CEO Guy Parsons adds ‘we are delighted to be investing in our first owned property in Spain.’ He adds ‘the strength of the “easy” brand has already driven significant appetite for our hotels from the Spanish market, with Spanish customers currently accounting for 5% of all easyHotel guests. We are confident that there is considerable opportunity to expand the easyHotel brand through a mix of owned and franchised hotels in Europe and in Spain.’

• British Hospitality Association has said that it is ‘going head to head’ with Airbnb. It says the sharing platform is ‘industrial in scale’. It says Airbnb attracts ‘professional landlords, operating outside UK regulations and endangering the safety of the public.’ The BHA says that 40% of all home-exchanges are professional landlords ‘running unregulated ‘pseudo-hotels’’.

• Alan Maclean, Cosmos Tours’ managing director, is departing the business at the end of the month to ‘pursue other interests’.

• Intercontinental Hotels Group has opened its 5,000th hotel – the 293-room Hotel Indigo Lower East Side New York. The site is a joint venture with Brack Capital Real Estate and reinforces IHG’s leadership in the boutique segment, which the group calls ‘the fastest growing in the hotel industry’.

• Over 70% of consumers feel optimistic at the start of 2016 about their household finances and one in six are planning a major holiday or overseas trip. The study of 2,000 UK consumers by Barclaycard found that 58% of respondents are confident in their ability to spend more on non-essential items this year, suggesting a friendly market for leisure and retail despite global commodity and growth concerns. Additionally, 34% are planning ‘a major purchase [of] the type that only comes up every few years or so.’

• The Egyptian tourism minister has said the country intends to strengthen its security measures following the terrorist attack in Hurghada. Hisham Zaazou said, following the attack at a red sea resort that left three European tourists with stab wounds: ‘Unfortunately there is an active global challenge with many incidents in recent days and months throughout the world.’

• Ten people have been killed in suicide bomb attack in Istanbul, Turkey, which also left fifteen injured. Officials say a Syrian national carried out the attack.

Other Leisure:

• Global PC shipments fell by a record 10.6% in Q4 last year as consumers increasingly turned to their phones & tablets. Some 71.9m PCs were shipped in Q4.

Finance & Markets:

• Bank of England governor Mark Carney has said that the UK’s economic recovery is not being fuelled by debt. He further denied that he would be requiring UK banks to generate more capital and to keep it on their balance sheets going forward.

• UK industrial production fell by 0.7% between Oct and Nov as a result of a slump in oil & gas production.

• Sterling yesterday slipped to a 5.5yr low vs the US dollar

• China exports were back in growth in December registering a 2.3% rise from a year ago in yuan-denominated terms.

• World markets: UK markets higher yesterday, Europe too. US markets higher later + Far East up in Weds trade

• Brent up a little at $31.10. Price had briefly fallen below $20 per barrel for the first time in 12yrs

Retail Roundup from Nick Bubb:

Sainsbury: Today’s Q3 (for the 15 weeks to Jan 9th) obviously says nothing about a bid for Home Retail, as management want to do all they can to buoy their own share price and wait to hear Home Retail’s defence tomorrow, via their Xmas trading update. And the news is fine, with LFL sales only down by 0.4%, although it is all much as expected. JS say that “We reduced our levels of vouchering and promotional participation year-on-year” and “we now expect our like-for-like sales in the second half of the year to be better than the first (-1.6%). Food deflation and pressures on pricing will ensure that the market remains challenging for the foreseeable future”. The conf call at 8.30am should be interesting

Ted Baker: Ahead of today’s update, the share price has been notably weak, but the news looks reasonably good, with a 10.6% constant currency increase in Retail sales for the 8 week period to 9th January, on the back of an average retail square footage rise of 7.5%. And gross margins were in line with expectations and there was no significant promotional activity before Christmas, with the Board anticipating that “the full-year results will be in line with its expectations”. Commenting on trading, Ray Kelvin, the eponymous Founder and CEO, says: “The Ted Baker brand has performed well over the Christmas period against a tough trading backdrop”.

Other news: We have also had the Shoe Zone interims, the Dunelm Q2 update and the Game Digital AGM update, but there are no big shocks. And the beleaguered Sports Direct has confirmed that it has taken small stakes, via CFD’s, in 2 American sports companies. Nick Bubb – nicholas_bubb@hotmail.com

Tuesday 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:

Whitbread:

• Shares have given back a lot of ground and are attractive.

• That said, the trickle of potentially negative news continues.

• Staycations may benefit the group but today Air France said that terrorism cost it €50m in lost sales in Nov and €70m in Dec

• Yesterday we saw Travelodge unveil new expansion plans

• Today a rival broker suggests that Airbnb is widening the market rather than stealing share. It may be doing both.

• Today we also have Gregg’s saying that it’s going to reinforce its efforts to grow in the breakfast & coffee markets

• Overall, we believe that Whitbread’s shares offer good value. The group trades on 19x this year’s numbers but, as it is a Feb year end, this will change shortly.

• For FY17, the group’s shares trade at 17x EPS. That seems a little low for an asset-backed (at least in the UK) group with international options.

• Timing is everything, of course.

Morrison’s and Gregg’s, divergent fortunes:

• Two northern retailers reported today.

• Morrison’s shares have halved over the last couple of days – and at the time of writing they are up by 10% on a decent (at least stable) Xmas update.

• Gregg’s shares, on the other hand, have hey have trebled over the last two years but now the company is lapping tougher comps.

• Q4 has slowed (+2.3% LfL vs +4.7% for the full year – and +4.9% to end-Q3).

• And the group has used that dreaded word ‘broadly’.

• Greggs said ‘since our last update, trading has been broadly consistent with our plans and we anticipate that we will report full year results in line with our previous expectations.’

• There may have been exceptions but the word ‘broadly’ is rarely if ever used in a positive context

• Pie shop Gregg’s, which has performed extremely strongly but which operates in a market with few barriers to entry, trades on a FY15 multiple of 24x falling to 22x for the year to end-December 2016.

Retailing in general, it’s a crazy market:

• There’s a lot going on. Christmas, yes, warm weather, yes – but still, there’s a lot going on.

• You’ve got bid approaches – Home Retail.

• And you’ve got underperformers & management change; Sports Direct, Game Digital, Marks & Spencer (to some extent, at least).

• And you’ve got haloes slipping (NXT, Gregg’s) and bootstraps being pulled up (Morrison’s, Debenhams, Majestic) so what next?

• Perhaps an actual bid or a profit warning or an accounting scandal?

• Or maybe things will settle down. See Nick Bubb & prior Langton comment.

Retailing, the lessons from recent updates:

• Black Friday (again) pulled sales forward.

• Xmas was average to poor for many retailers & the warm weather adversely impacted clothing retailers.

• The week to 2 Jan, on the other hand, saw a ‘sales bonanza’.

• Online sales are up between 20% and 100% (admittedly across a decidedly non-scientifically chosen group of retailers)

• KPMG says ‘with 190% of average rainfall falling in December, many consumers chose to login rather than walk in over the festive period’.

The cash in consumers’ pockets:

• We’ve commented previously on petrol price drops, rising real wages, utility price reductions etc.

• ASDA is putting £500m back into the market.

• And Morrison’s today says that it has cut prices (excluding fuel) by 3.2% this year and 7% over the past two years

• This is likely to continue and, with prices still perhaps 20% above those charged by the hard-discounters, the major grocers may have to halve the difference in order to stabilise their sales base

• This will clearly be positive for the consumer & for consumer-facing stocks such as the pubs, restaurants etc.

Oil testing new lows:

• Trading at little over $31.10.

• Actually represents something of a bounce from overnight lows of c$30.60.

• See earlier emails for implications re costs, inflation etc.

Sterling sliding on international markets:

• The Pound had another bad day yesterday. See Monday comments for impact on tour operators (and the pound in returning holidaymakers’ pockets).

Random information, hopefully not all of it useless:

• Langton’s LRI shows leisure outperforming the wider market. Admittedly this is at least partly due to the miners having fallen sharply – again. That said, WTB was a loser last week (up sharply in the first two days of this week) and, if it were removed from the LRI, the performance of the remaining stocks would have been materially better than that of the market as a whole.

• Utility prices weak. Even the El Nino stocks giving a bit back. Cocoa is one of the best-performing soft commodity products but it is now only up a short 2% over the last 12mths.

• Milk price still very low. Chart is slightly misleading as it shows farm gate prices in Northern Ireland are picking up from what look like the anomalously low prices hit in the summer. Prices elsewhere in the UK could only be have said to have stabilised – and that at prices some 30% below where they were a year ago.

• Dilbert’s bosses advice for the day below. Note for the easily-led, this is not legally correct. He says ‘it’s not a crime if you pretend it was an accident’.