Langton Capital – 2016-01-20 – Daily Wrap: More on JD Wetherspoon, oil, interest rates & 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:
• See two earlier flash notes.
• Shares still down around 7% on what, for Wetherspoon, was not a particularly negative update.
• Certainly the meaning of ‘bottom of the range’ was teased out of the company during the conference call – and it was not pretty, the ‘range was said to be £69m to £89m – suggesting a c6% or so downgrade – but the company is still growing and is still taking market share.
• And the rating, at below 14x reduced numbers, is beginning to look attractive.
• Sure, frustrated observers (let alone holders) will ask ‘when’s the company going to bring home the bacon?’ but this may well be a buying opportunity.
• That said, as we saw arguably with Gregg’s and Restaurant Group when their PERs were inflating, shares can overreact in both directions.
• But enough, already. None of this ‘on the one hand but on the other hand’ business. We think JDW is a good company and we see the shares, at these levels, as cheap.
• Shares fell on Alton Towers crash.
• Recovered virtually all of their drop (which was, perhaps, a little bit too much, too soon).
• And have now given more than a half of that recovery back.
• Puts them, market turbulence notwithstanding, firmly back in ‘interesting’ territory.
Random information, hopefully not all of it useless:
• WH Smith up 6% (in a dreadful market) on Xmas update beat. Has been a heavily shorted stock & there’s a squeeze going on. Group’s LfL sales were better than expected with the travel division +5% in the 20wks to 16 Jan. CEO Steve Clarke says ‘we expect profit growth for the year to be slightly ahead of plan’.
• Adult colouring in. No joke. WH Smith says its High Street performance was ‘driven by successful promotions in our stationery and seasonal categories and continued good sales of ‘colour therapy’ in books’.
• Equity market now at 3.5yr lows. If a 20% drop from recent highs is defined as ‘a bear market’, then we are within a whisker of that now.
• Travel stocks strong yesterday, TUI, Thomas Cook. Today, not so much.
• Sterling stable. However, yesterday, it touched 7yr lows versus the US$.
• UK CPI ‘doubled’ yesterday from 0.1% to 0.2%. Microscopic changes, that’s for sure but, for the record, CPI in the UK is now at its highest level since January.
• See earlier email for comments on slowing UK & world economy. We featured a negative PwC confidence survey, Mark Carney comments re delayed interest rate rises, IMF reduced forecasts & comments on currencies. A slowdown may happen – look at China – and markets may overreact on the downside. Moderated growth, however (as opposed to a recession) would hardly be the end of the world.
• Oil price still very weak. This (below) is a non-inflation-adjusted 25yr chart. Shows oil back to levels of c15yrs ago. Note also that the world functioned perfectly well with oil at c4x current levels for around a 5yr period until just over a year ago.
Further retail comment – Nick Bubb:
• Today’s Press and News: There is plenty of coverage on the front pages of the view of Bank of England Governor Mark Carney that interest rates don’t need to go up this year, but on the Business pages there’s plenty of Retail news to keep the papers happy, with Next, Ocado, ScS and MySale all in focus on the retail beat yesterday.
• The Daily Mail market report story that Amazon is considering launching a takeover bid for Ocado saw the shares spike sharply first thing yesterday, but they ended the day “only” 7% up and the Times market report notes the scepticism in the City, as the company didn’t issue any statement, although Lex column in the FT wades into the debate with a piece headlined “Plan B”, concluding that a takeover would help Ocado gain scale.
• The Daily Mail today flags the news that Holland & Barrett has been accused of squeezing small suppliers and that Aldi has launched its Online wine business (as noted by several other papers). The Times goes big on the embarrassing technical glitch in Next’s special dividend programme and the Telegraph flags that MySale, the Australian Online retailer backed by Philip Green and Mike Ashley, has returned to profit, whilst the Guardian highlights that Sports Direct has been accused of “abusing the legal process” by a High Court judge in the Rangers FC case.
We’re so 21st Century, this morning’s Tweets (diff. font size denotes importance):
1. JD Wetherspoon Q2 Update. LfL sales better at +3.3% with total sales including the impact of new openings up by 6.3%
a. JDW accelerates vs Q1. Q2 LfLs +3.3%, year to date +2.8%. Margin H1 should be c6.3%. Will open 10-15 pubs this year.
b. JDW sales better but says ‘our current view is profits for this year are likely to be towards the lower end of analysts’ expectations.’
2. Netflix customer numbers surged to a record 5.59m users in Q to Dec bringing total membership to 74.76 million.
3. Twitter went offline for many users yesterday, leading the group to assure complaining users that the platform is ‘working towards a resolution’.
4. A survey by PwC finds that global executives are more pessimistic about growth in 2016, with only 27% thinking things will improve
5. Bank of England governor Mark Carney said on Tuesday there is no timetable for raising interest rates
6. The International Monetary Fund has downgraded its forecast for global economic growth by 0.2% to 3.4% this year
7. The UK CPI rose from 0.1% to 0.2% in December as a 46% rise in air fares offset falling food and clothing prices.
8. Sterling lower, down 4% since start of 2016. BBC points out has been losing ground vs Euro for 8wks