A Day in the Life:

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

So I finally did it, I fell over the ‘mind the slippery floor’ sign because, as our thoughtful office cleaner puts it right outside the loo door, it’s been almost inevitable that I would for some time now.

I mean sure, you see the sign, a small A-Board, on the way in.

The floor’s wet, the sign serves a purpose and you take care but, as I at least have a head full of football information, beer memories, TV programmes, share prices and random financial data and other irrelevant flotsam, by the time I come out you can’t possibly expect me to remember what I saw on the way in and, on this occasion, I tripped over the thing over I went.

And laying spread-eagled on the floor outside a busy toilet is not a good look under any circumstances. It’s hard to look cool. You don’t get many ‘mummy, I’d like to be like that when I grow up’ comments but admittedly you should be able to keep it to yourself and you’d be pretty unlucky to end up on You’ve Been Framed.

However, that’s how these things happen and, after hearing that tens of thousands of people had been watching a webcam picture of a puddle in Newcastle, you have to admit that stranger things have happened.

Anyway, dignity somewhat patched up, it’s perhaps a good thing that it’s Friday. On to the news:

The News:

Pub, Restaurant & Drinks Producer News:

• Restaurant Group. As our Daily Wrap comments (copied below) were written mid-morning yesterday, we were pretty close in our suggestion that the RTN share price could fall to around 525p. As it was, it fell to 522p and, if it were to track the move in Gregg’s, it may bounce a little today – even in what promises to be a modestly down-day.

• Restaurant Group: The group has pointed out that it had perhaps as many as 20 restaurants put out of action by the floods in the North of England – tell me about it, I live in York – but it’s not alone in this and few retailers have made a big thing about it. MRW and GRG both hail from North of the Humber-Mersey line and they did not mention it (other than in passing).

• Restaurant Group: Which, if the slowdown is not being generally felt by other leisure retailers, throws us back on a couple of slightly uncomfortable points. That is 1) perhaps RTN (or at least its share-price (think Gregg’s)) had just got slightly beyond itself or 2) could it be that some of the units being opened are destined to trade at slightly lower levels than those already open?

• Restaurant Group: The group is conscious of the second point and said in yesterday’s statement ‘during 2015 we opened a total of 44 new restaurants. We are very pleased with how these are trading and they are set to deliver strong returns.’ It added ‘we have good visibility on the composition of the opening programme and we anticipate opening a broadly similar number of new restaurants during 2016.’

• Restaurant Group: Perhaps it would be unfair for the City to demand on the one hand that every company get every ounce of return from every asset – and then turn around and ask said company what it is going to do for an encore and perhaps even suggest that it may have been overtrading.

• Restaurant Group: The latter comment may be (and may be rightly) contested by RTN but, at the end of the day, something caused it to slow down – and this at a time when the weather, Star Wars, increased footfall at retail parks and a consumer with his wages back in real growth, should arguably have provided something of a following wind.

• The IEA has again questioned the potential effectiveness of a sugar tax in The Telegraph, pointing out the limited impact similar sin taxes have had in Mexico, Denmark and the US.

• Southern Comfort Brown-Forman is selling the brand to rival, Louisiana-based Sazerac, alongside its Tuaca premium liqueur brand. The sale is expected to close by 1 March and will result in a one-time operating income gain of about $475m for the company in fiscal 2016. Brown-Forman said last month that net sales for the Southern Comfort brand had dropped by some 7% in the company’s first half as a result of weak sales at bars and restaurants and competition from new flavored whiskies.

• Inamo co-founder Noel Hunwick expects to see a rise in high-tech dining out over the next few years as consumers become more accepting of gadgets in restaurants.

Leisure Travel:

• Security specialist Anvil has highlighted turbulent oil prices, the threat of global terrorism and cyber attacks as the biggest threats to UK businesses and their travellers. Various banks have predicted the price of a barrel of oil could fall to as low as $10, having dropped to below $30 for the first time since 2004 earlier this week. Meanwhile, Islamic State has claimed responsibility for attacks in Turkey, Indonesia and France to name a few in recent months.

• STR says there were 1,132 hotels comprising 161,940 rooms Under Contract in Europe as of December — a 16.2% increase year on year. The UK reported the most rooms under construction with 14,121 rooms in 181 hotels. Three other countries reported more than 5,000 rooms under construction: Germany (8,369 rooms in 40 hotels); Turkey (8,128 rooms in 49 hotels); and Russia (7,933 rooms in 39 hotels).

• By comparison, the US has some 3,881 projects coming to 469,139 rooms Under Contract, up 13.6% on December 2014, with 17.2% more rooms under construction. The Economy segment reported the largest year-over-year increase in rooms Under Contract, rising 70% to 6,801 rooms.

Other Leisure:

• Uber China has closed its oversubscribed Series B round of funding, which values the company at $7bn.

• Evolution. In this case towards Tablets etc. Intel shares lost c5% in extended trading after its data centre revenue missed Q4 forecasts of $4.4bn, coming in at $4.3bn (£3bn). The US tech giant and world’s biggest chipmaker saw revenue growth of just 4% compared to 8% in the preceding quarter. Revenue from its PC business fell 1% year on year to $8.7bn. The group has been focusing on growing data centre revenue in the wake of softening demand for chips used in its computers.

Finance & Markets:

• Bank of England yesterday held rates in the UK at 0.5% (vote 8-1) and left QE unchanged at £375bn (vote (9-0).

• Bank comments on inflation says CPI ‘rose to 0.1% in November and is likely to rise modestly further in the coming months.’

• Bank says risk of inflation reduced as price of oil has continued to tumble. Most of deviation from 2% target is due to commodities. Bank says ‘the outlook for inflation in the medium term reflects the balance between the persistence of the dampening influence of factors such as the past appreciation of sterling and subdued world export prices, and prospective further increases in domestic cost growth.’ It says it will ‘set monetary policy to ensure that growth is sufficient to absorb remaining spare capacity in a manner that returns inflation to the target in around two years and keeps it there in the absence of further shocks.’

• UK interest rates. Betting remains on the likelihood of an increase either in Q4 this year or even in 2017.

• ECB minutes from Dec show some members wished to ease monetary policy further.

• World markets: UK down yesterday, ditto Europe. US markets managed a rise but Far East is down in Fri trade

• Oil price a little off the bottom but falling again at the moment. Hit 12yr lows overnight but now trading at around $30.65 per barrel

Retail Roundup from Nick Bubb:

Bonmarche :
Back on Dec 16th, poor old Bonmarche was one of the first Fashion retailers to warn that trading conditions during November and early December had been very challenging and since then that story has been well played out. Fortunately, today’s formal update for the 13 weeks ended Saturday 26 December 2015 doesn’t lower guidance any further: “The Board’s view of the expected outcome for the year is unchanged and it therefore reiterates its expectation that the PBT will be within the range of £10.5m to £12.0m”. In the month of December (defined as the 5 weeks to Dec 26th) Store LFL sales were down by 2.7% and even Online sales were down, by 2.4%. Interestingly, however, Beth Butterwick, (the soon-to-be departed CEO), says: “In the short period since Christmas, demand has trended towards more normal levels” (which bears out the message from the recent John
Lewis sales figures).

B&M:
We must confess that we completely missed the B&M Q3 update yesterday, partly because there was just so much other stuff coming out and partly because the announcement wasn’t due until next Friday: ie this was actually the first update of the season which was brought forward. But if you thought that the infamous “Super Thursday” (when “the world and his mother” report on Christmas trading) would be a good day to bury bad news from B&M, then you’d have been wrong…because the news was good and it was brought forward because of the share price pressure caused by the Poundland profit warning last week. LFL sales in the core UK business were down by 0.7% in the 13 weeks to Dec 26th, but they were “positive” in the Christmas period, despite the unseasonal weather, and total sales were up by as much as 24.4%, reflecting some
strong store openings. Importantly, B&M was able to reassure the market by saying “We remain comfortable with market expectations for the full year” (hence the 8% share price bounce yesterday).

Today’s Press and News: With Tesco, B&M, Home Retail, ASOS, Burberry, Mothercare, Moss Bros, McColl’s, Booker, ABF (Primark), JD Sports and SuperGroup all in focus on the retail beat yesterday, there’s tons for the press to talk about, but Tesco obviously dominates. The bold front page headline of CityAm is: “Big four strike back”, whilst the Telegraph Business section has a big photo of Tesco boss Dave Lewis and the headline “Tesco proves that there is life in the old hypermarket yet” and the FT runs with “Tesco buoyed by Christmas surprise”. In terms of today’s news, it is worth noting that the Competition and Markets Authority (CMA) has cleared BT’s acquisition of the mobile phone giant EE.  

News Flow Next Week: Things are, thankfully, a bit quieter next week, although there’s still plenty going on. Philip Green will be interested to hear the MySale trading update on Tuesday and supermarket property investors will also be interested to hear what British Land have to say that day in their Q3 update. Then Wednesday brings the WH Smith Xmas update and the Pets at Home Q3, whilst the Halfords Q3 and the Land Secs Q3 are on Thursday and the ONS Retail Sales for December are on Friday. Nick Bubb – nicholas_bubb@hotmail.com

Thursday 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:

Restaurant Group re-educates market:

• Restaurant Group shares, though off the bottom, are having a bad day.

• They’re currently down around 14% (spookily similar to the drop seen by GRG earlier in the week) and look set to close, if not at their lows, then at least sharply down on the day as a whole.

• This due to the group saying that ‘it has become apparent from much of the recent data from the retail sector and the wider economy that the trading environment for many consumer facing businesses has been tougher in recent months than it was earlier in 2015.’

• It commented ‘this has caused like-for-like sales growth to trend lower and accordingly we are more cautious than previously on the outlook for 2016.’

• Not surprisingly, numbers are under review and, more importantly, so is the rating.

• Arithmetically as regards forecasts, we have yet to see the dust settle.

• However, a move from yesterday’s 2016 numbers of 17.1x consensus EPS of 37.3p to say 15x a new consensus of 35p would imply a share price drop from yesterday’s 637p to perhaps 525p.

• At the time of writing, the shares are trading at 528p. Ta da!

• NB. RTN is not a bad company. Arithmetically it is tough to compare what happens in a freakily warm run up to Xmas with a standard day in, say, March. Also the group updates in round quarter per cents. Hence a slowdown from 2% to 1.5% could actually be a move from 1.9% to 1.6%. However, the group’s shares are only lightly asset-backed, barriers to entry are limited, there are capacity issues, the marginal new store in 2016 should not be as good as the marginal new store in 2013 and there are profits to be booked.

Is Restaurant Group an isolated case?

• It’s odd that RTN should have been helped by Star Wars and we’ve seen footfall hold up at retail parks yet the group has effectively warned on profits.

• We’re not hearing this elsewhere.

• November was not a good month (post Rugby, tough comps) but December was OK and Chritsmas was acceptable

• The warm weather in December will have been a positive

• We believe that trends outlined by the majors throughout 2015 remain in place.

• We hear from Punch Taverns (AGM) on 18 Jan, Marston’s (AGM) on 26 Jan, the Greene King Tracker comes out on 27 Jan, M&B has it’s AGM on 28 Jan and Enterprise updates on 11 Feb.

Merlin, what’s going on?

• Yes we know there are profits to book, RTN is casting doubt on the consumer’s ability to spend & terrorism a negative.

• But isn’t a weaker Pound good for the company? See below:

Sterling weakens:

• Sterling down against both Euro & US$ yesterday. Is becoming something of a trend. Bank of England due to update on interest rates at 12.00 today. No change to either rates or QE expected.

Oil price weak. Stuck record, etc. but this is important:

• Oil testing $30 again having been markedly below. Goldman targets of $20 looking not altogether unreasonable.

Random information, hopefully not all of it useless:

• The gas price has tweaked down in response to oil. It must have been listening to us.

• Cocoa price now decidedly weak. Where’s El Nino when you need it?

• Asian markets weak, US led them down. Consumer stocks in US particularly poor performers

• Bear markets. Tech analyst calls charts in US ‘very ominous’. Sure, shares are down in the short term but aren’t downward moves (let alone bear markets) actually designed to make us question our assumptions, assume that everything is awful? S&P is at its lowest level since last September