A Day in the Life:

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

Have you ever made the (often near career-fatal) mistake of offering constructive criticism to a person who has always maintained that they welcome such comments?

Because Langton, at least in its younger days, has, it’s made the mistake of taking people a little too literally when they’ve said the above (as well as when they’ve said things like ‘we must do that again’ or ‘ring me anytime’) and it’s frequently not ended well.

Because you can see the smile freeze.

And the person to whom you’re talking’s hand clenches on their pint/cup of tea and you know, beyond a doubt, that you’ve made a ‘your baby is ugly’ comment and that there’s no going back, your card has been marked and it can get worse.

The person thanks you for the comment, grates their teeth a bit and then turns their back on you is some sort of Maoist gesture to their acolytes that you have become a non-person, that you’re figure is going to be air-brushed from the team photo and your desk will be empty by the time you get back to it.

Hence, after many such dalliances with telling the truth in the workplace, we find ourselves self-employed. On to the news:

The News:

Pub, Restaurant & Drinks Producer News:

• Revolution Bars updates on trading for 26wks to 26 Dec, says made ‘good progress with three new sites opened’.

• Revolution update: Says ‘trading results are expected to be in line with market expectations, reflecting a further period of growth in the number of sites, revenue and profit.’

• Revolution reports LfL sales up 2.7% in 26wks to 26 Dec. Says total sales up 1.9% at £59.1m. Opens 3 bars in period. CEO Mark McQuater reports ‘following a good Christmas trading period, we are pleased to confirm that trading results are in line with expectations.’

• Revolution CEO McQuater reports ‘our new sites at Milton Keynes, Leeds and Nottingham have all started trading well. These sites were open and trading for the Christmas period and, for the six weeks to 2 January, Group sales rose by 7.0% compared to prior year, indicating the impact of adding new bars.’ He adds ‘we expect to open a further two new sites in the second half, which will grow the estate from 57 to 62 sites over the course of the financial year.’

• Revolution concludes ‘we remain positive for the future and will be providing an update on first half profits and the success of our development activity at our Interim Results on 1 March 2016.’

• Scottish Licensed Trade Association reports on Xmas. Survey of 600 outlets shows 39% in growth vs 25% growing in the summertime. A further 16% report their business as stable.

• SLTA says 77% of outlets with accommodation, either grew their room occupancy or remained stable over Xmas / NY.

• SLTA reports countryside venues under pressure, says over 40% showed a decline at Xmas & New Year.

• SLTA reports 50% of respondents have called out increasing sales as their biggest financial challenge though 34% of outlets expect to grow in 2016, vs 18% in its summer survey. However, in remote/rural locations only 16% expect to grow in 2016.

• Irish publicans pushing to be allowed to open on Good Friday reports FT. It says ‘years of lobbying the government have yielded promises but no action to reform a law the industry says costs it €30m a year in lost revenues.’

• Fleurets has reported its take on 2015 saying that the year was one in which the recovery reached all parts of the UK as a whole. Nonetheless, it says ‘it was a continuing trend that significant regional variations remain.’ It points to the performance of the national pub companies when compared with those of Fuller’s and Young and Co as indicative of the strength of London trading.

• Fleurets says that 2015 saw the return of the significant leisure deal.

• Fleurets says ‘concerns in relation to international security will undoubtedly continue to place a dark cloud across the wider UK economic and investment sentiment’. It still says ‘we remain confident that 2016 will see further strengthening of the leisure sector market conditions and further improvement in trading performance, particularly among tenanted pub companies.’

• Canadean’s latest Global Beer Trends report finds that Asia continues to record the highest consumption level, while Africa is forecast to have the highest growth rate. More mature markets such as Europe and North America will see volumes grow by a per cent or less from 2015 to 2020, compared to a forecast average growth rate of 5% (37,000 hectolitres a year) a year for Africa. China’s level of beer consumption is set to grow 3% a year over the same period to nearly 900 thousand hectolitres.

• Survey: Africa’s growing appetite for beer is set to be aided by growing disposable incomes and GDP growth rates in the coming years. South Africa is by far the biggest volume contributor for the region, followed by Nigeria and Angola, while in terms of the per capita consumption Seychelles, Equatorial Guinea and Gabon will take the lead with more than 100 litres by 2020 respectively.

• Survey: Piyumika Jayasena, analyst at Canadean, commented: ‘This notable growth will be fostered by the flourishing economic parameters such as increasing GDP growth rates, fast growing urbanization and above all the rising population with a working age demographic set to surpass that of China and India.’

• PE firm Equistone has taken a majority stake in 17-strong the Gaucho group believed to be worth north of £100m. The Gaucho group has 16 sites in the UK and one in Amsterdam, and is owner of the fast growing casual steakhouse brand CAU. Gaucho CEO Zeev Godik commented: ‘We’re delighted to welcome Equistone to the business and look forward to working with them closely as we execute our ambitious growth strategy. Their investment will provide us with the firepower and expertise necessary to expand our restaurant footprint whilst continuing to deliver an outstanding dining experience for our customers.’

• Supermarket alcohol sales have tumbled in the UK this month as the ‘Dry January’ trend continues to gain traction with consumers. An average of just under £1 in every £10 spent in UK supermarkets last year was on alcohol, compared to just 46p in every £10 so far this month.

• NHS chief exec Simon Stevens has revealed that a sugar tax is set to be imposed in hospital shops, cafés and vending machines across England. The tax will be extended to all acute, mental health and community services hospitals by 2020, as well as all local health centres. The government has not ruled out a UK-wide sugar tax ahead of the publishing of its childhood obesity strategy.

• Smashburger has secured its first UK site in Milton Keynes, set to open this Spring, and plans to open more than 35 UK sites in the next few years writes M&C.

• Constellation Brands is planning to invest $42.8m into expanding its Marlborough Winery in Blenheim, New Zealand over the next three years.

• Tesco gave away free fruit at stores across the country yesterday as part of a January health drive. Free sampling has become a trend under CEO Dave Lewis, with the retailer launching what it claimed was the biggest sampling event in UK supermarket history in the build-up to Christmas.

• Carrefour Q4 sales grew 4.1% at constant exchange rates and ex petrol, with LfLs up 1.5% at its supermarkets and up 1.1% in its c-stores and other formats.

Leisure Travel:

• Islamic State group-related attacks have led to a notable 8% decline in tourism to North Africa, despite an international growth trend of 4.4%. Millions of people across the region rely on tourism to make a living, but countries such as Egypt, Tunisia, and Morocco have been strongly affected. Limited data available for Africa as a whole suggested that tourism was down by 3% to 53m – 8% in North Africa and 1% in Sub-Saharan Africa.

• The Hyatt hotel chain has admitted a number of UK hotels have been attacked by malware which stole guest credit card details last year. Around 250 of the group’s 627 properties were affected around the world from 20 July last year, including the Hyatt Regency Birmingham, Andaz London Liverpool Street and the Hyatt Regency London.

• Fred Olsen Cruise Lines enjoyed a 27% hike in sales over the first week of January, marking a record seven days for the company in terms of yield and volumes. Sales and marketing director, Nathan Philpot, said: ‘A number of our sailings for 2016 are already sold out, or only have a handful of cabins left. We will be moving our largest ship, Balmoral, to Newcastle this year, which was an ambitious decision, but the travel trade have been extremely supportive, and our sales in the north-east are well ahead of expectations. A key strategic driver for us is to attract new guests to the brand. Whilst we have a very high repeat rate – with a significant number of Fred Olsen cruisers returning time and time again – January has seen the share of ‘new to cruise’ guests shift by seven percentage points, and the average guest age has fallen by 11 months across the
fleet.’

Other Leisure:

• The Original Bowling Company has invested £350,000 into the refurbishment of its Hollywood Bowl Centre in London’s Surrey Quays. Steve Burns, CEO at The Original Bowling Company said: ‘The refurbishments we completed in 2015 have been extremely well-received by our customers and are delivering excellent returns on our investments. The Surrey Quays centre is the first of several planned refurbishments in 2016 and we are also actively looking for opportunities to open new centres on a nationwide basis.’

• Adidas Group’s China subsidiary reported record results in 2015, with sales of £2bn after expanding its network in the region to 8,500 stores. The group wants to become the ‘best sports brand’ in Greater China by 2020.

Finance & Markets:

• China growth (at 6.9%) is now officially the slowest for 25yrs. China government has therefore marginally undershot its 7% target. The Chinese economy was growing at around 6.8% in Q4.

• World markets: UK down yesterday, Europe likewise. US closed for M Luther King day, Far East higher in Tues trade

• Oil trading at around $28.95 per barrel. Price was briefly below $28 on back of lifting of Iran sanctions

• The Bank of England’s policy decision hangs in the balance, according to policymaker Gertjan Vlieghe who has been struck by the failure of wage growth to pick up despite falling inflation. The implication is that there is still spare capacity in the economy.

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:

Backdrop:

• It being the middle Monday in January, we are statistically living through the most depressing day of the year.

• Having said that, Langton is buoyed by the warm afterglow of a 6-0 Hull City victory on Saturday.

Coffer Peach Tracker for Xmas period:

• See earlier email for detail.

• Main take-away points:

o Wet did better than food. Warm weather & Xmas.

o London performed in line with the provinces. A recent first & perhaps a sign of exhaustion in the Capital?

o London restaurants performed less well than those in the provinces. This is a capacity issue. We have opined at length. New entrants may perform well themselves, but the cake (which until now has admittedly been growing) must be sliced more thinly.

o Total sales were +5.2% with LfL sales +1.8% and the balance made up by new capacity. Capacity growth is running in excess of GDP growth. That can’t go on forever.

• The note of caution introduced by Coffer is interesting. Director Mark Sheehan says ‘looking ahead we do predict a tougher 2016 with a marked downturn in consumer confidence and strong completion in the sector from the many expanding restaurant, bar and pub groups.’

• Coffer has previously noted that ‘even tall trees do not grow to the sky’ and has suggested that property costs are perhaps a shade high.

• So what to do? First, we, Coffer & history may be wrong; perhaps London will grow to the sky. Second the regions are OK. Third, some new entrants will perform extremely well. Fourth the ‘industry’ may prosper whilst many if not most of the players in it struggle. Stock selection is key.

Restraint (lack thereof) and Restaurant Capacity:

• The Tragedy of the Commons – see – here

• What is good at the micro level may be damaging at the macro.

• In the restaurant market, there is little if any evidence of a self-correction.

• The fact that there is too much capacity, therefore, may be drilled home only when profits fall, rents can’t be paid, the VAT man comes calling etc.

• This is an issue caused by the few (some of whom may do really well) but affecting the many.

• The impact may come through higher rents which, once elevated, are extremely sticky on the downside.

• Labour may be bid up, customers may become demanding, entitled etc. Discounting may follow, bring with it lower margins, worse cash flow etc.

Highly rated companies, Patisserie Valerie:

• Gregg’s and Restaurant Group’s shares fell sharply last week as did shares in Cineworld. 

• But the shares of Patisserie Valerie also fell sharply. They are now down by around 25% in a week.

• Yes, in a week.

• And, whilst we do not doubt that the shares were a ‘sell’, nothing is really going wrong.

• But, when ratings are examined forensically, growth prospects are analysed and fund managers are looking for profits to book, this is the kind of thing that happens.

• One manager dashes for the exit, so does another, the shares fall and, before too long, the cart is being put before the horse and people may be suggesting that the share price move is ‘trying to tell us something’.

• When in fact it isn’t.

• That’s not to say that the shares couldn’t concede more ground. They trade, even after their fall, on around 25x this year’s earnings and yield about 0.8%.

Market evolution:

• Today we refer to the growth of the serviced apartment market.

• Also the growth in Chinese tourist numbers.

Interest rates and the stock market sell-off:

• It’s a silver lining, but it comes at a price.

• Lower oil, no inflation & weaker stock markets do make it somewhat less likely that the US will put up interest rates the expected 4x 0.25% this calendar year.

• Betting has already shifted to perhaps two rises with the first the other side of the summer, likely September.

• The UK remains some two to four moves behind the US. Betting here is now for end-2016 or sometime in Q1 of 2017.

Iran and the oil market (very briefly):

• Iranian rehabilitation has been well-flagged.

• The oil market should have discounted Iran’s re-emergence long since

• Sometimes this pricing in happens, sometimes it doesn’t

• Efficient Markets Hypothesis be damned, emotion matters

• Iran is c1m barrels a day (bpd) at full pops, it is c100k now

• World oil supply is c97m bpd (and it may rise). Demand is 96m bpd (and may fall).

• The above is negative re pricing – but it should not be a shock.

Random information, hopefully not all of it useless:

• Retail had an extremely busy week last week. We would suggest that it may be worth sparing the time to read through Nick Bubb’s earlier contribution alongside our own Food Retail Index and Leisure Retail Index comments this morning.

• Oil price trying to bounce. Traded below $28 at one point. Goldman target of $20 looking not unreasonable.

• Markets try to open higher then fall

• Sterling a little higher vs both US$ and Euro

• Commodities bar gold all pants. Gold bugs dusting off their buy stories. But to put the bounce in gold in perspective, price is still off c16% over the last year.

• Having said that commodities are priced cheaply, the sugar price is pretty high. Basic sugar is 14.92 cents per pound whilst white sugar is selling for $427.20 per ton, up around 6.9% over the last year. For anyone looking to store a few quid’s worth, you should be aware that it is sold in contract lots of 50 tons.

• CPI tomorrow. There is no inflation.

• US closed today. Don’t look for guidance to New York.