Langton Capital – 2016-01-29 – Rank, AG Barr, JD Wetherspoon & other:
A Day in the Life:
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Find previous emails at http://www.langtoncapital.co.uk/daily-notes/
So in the world of finance, would it be better to be a cowboy or a pirate?
Or a bandit for that matter.
Of course it would be best to be none of the above. To be a solid, dependable, trustworthy, honest and broadly correct predictor of trends, share prices, commodity movement and the rest but go on, choose.
It’s tough, isn’t it?
Because whilst being a cowboy suggests being something of a cavalier, devil-may-care and perhaps pleasant idiot, being a pirate (or bandit) suggests that whilst you may have had humble beginnings and be cleverer than your common or garden cowboy, you are actually making a conscious decision to sail close to (or over) the line between legality and illegality.
Langton, you can take it from me, is a solid brick of a firm. And we wouldn’t mislead you because we’re not bandits, are we?
QI note: Anyway, it’s time for the news but just to flag up that we may have to make some changes to this email in order to prepare ourselves with compliance with the rivetingly-titled MIFID II. However, for the moment, if you would like to spread the love and add a colleague or acquaintance to this email list then just let me know. On the other hand, you could just forward it to them & suggest that they hit the ‘subscribe’ button at the bottom and then, via the miracles of modern science, it will bung them on the list.
Pub, Restaurant & Drinks Producer News:
• JDW Thurs bought back another 35k of its own shares at a price of 664p. It has now bought back c685k for £4.2m (av. 616p) in last 10dys
• AG Barr updates on Q4, says ‘is expected to deliver revenue growth in excess of 2.5% in the period.’
• AG Barr: Growth in Q4 is despite tough comps, says is ‘lapping a prior year fourth quarter revenue growth performance of 5%.’
• AG Barr: Says ‘the soft drinks market in the UK has continued to be challenging and highly competitive however our trading strategy, brand activities and execution have delivered a robust market performance in the period.’ It adds ‘business performance has continued to improve across the second half of the year and revenue for the 53 weeks ending 30 January 2016 is now expected to be around £257m. On an ongoing basis, stripping out the effect of the 53rd week, revenue for the full year is forecast to decline approximately 1.5%.’
• AG Barr: Says re outlook ‘having dealt with the challenges of the first half and successfully managed the festive trading period we are on course to meet our expectations for the year.’ It adds ‘while trading conditions are expected to remain challenging, we are confident that the combination of our strong and flexible business model, our differentiated brands and our well invested asset base will allow us to deliver further long term business success.’
• Greene King OPA is now the Official Beer of England cricket after signing a five-year sponsorship deal with the England and Wales Cricket Board. The deal will allow Greene King to work with England players in promotional appearances, in-ground advertising and other branding opportunities. Chris Houlton, managing director of Greene King brewing and brands, said: ‘As we look to introduce our iconic IPA to a broader range of drinkers, we expect the increased exposure this deal will bring for our flagship ale, and our full beer portfolio, to deliver benefits which will be felt across the business.’
• Britain’s dairy farmers are facing another year of crisis, according to official stats which project a halving of incomes to an average of £46,500. The troubling news for farmers is mainly as a result of plummeting wholesale milk prices despite one-off support payments from the EU totalling £26.2m (c£2,000 per farmer). Farm gate prices fell to 23.71p per litre in December, a 14% fall year on year, according to data from the Department for Environment, Food and Rural Affairs (Defra).
• PE firm KKR is now one of the leading contenders to buy the Grolsch, Meantime and Peroni beer brands, which are being valued at around £1.9bn. KKR joins a few other private equity firms, and producers Ashai Group and Thai Beverages in the final stages of the process. Bids are expected to be handed in mid-February and a final decision should be reached in March.
• New Zealand wine exports reached a record £690m in 2015, up 14% year on year thanks to growing market share in places such as the US and Canada.
• Kuoni says EQT is its preferred bidder in the competitive process regarding a potential takeover offer for Group. It says ‘final negotiations with EQT for a potential takeover offer for Kuoni Group are in progress. At this stage, no final decisions have been taken and there can be no certainty that an offer will be made, nor as to the terms on which any offer might be made. Further information will be provided as and when appropriate.’
• The British Airways Holidays Travel Report’s survey of more than 5,000 people predicts that some 5.8 million people will have booked their holiday in January.
• Cardiff airport is aiming for a 31% capacity increase to its key Spanish destinations for summer 2016 following ‘significant’ YoY passenger growth.
• The US hotel industry reported mixed results in the three key performance measurements during the week of 17-23 January. Occupancy decreased 1.9% to 56.2%, while average daily rate for the week rose 2.5% to $116.51, and RevPAR increased 0.5% to $65.51.
• AccorHotels plans to sell 85 hotels around Europe for upwards of €500m after entering into negotiations with a new franchisee hotel operator. All of the economy and mid-range hotels included in the deal will keep their AccorHotels brand via long-term franchise agreements and will be refurbished within three years at a cost of €100m.
• Rank reports H1 numbers, says has turned in ‘good set of results with like-for-like revenue growth across all brands & channels’.
• RNK H1: Group revenue £374.2m (+3%), EBITDA £62.7m (+1%) and PBT £42.7m (+18%). EPS +17% at 8.1p, H1 dividend 1.8p (+13%).
• RNK H1: Says revenue LfL is +5%, digital revenue +14%, Grosvenor Casinos +7%, Mecca retail +2% LfL.
• RNK H1: CEO Henry Birch reports ‘I am very pleased to announce a good set of results with like-for-like revenue growth across all brands and channels. Even with the impact of RGD we have delivered growth in both adjusted EPS, up 4%, and dividend, up 13%.’ He adds ‘2016 will see us deliver significant new platforms, new functionality and new products – including a new digital platform, a new retail casino management system, new poker and sports betting products and a new retail bingo format – all of which will drive improvements across our company. It is extremely encouraging that ahead of these changes, we are continuing to grow all parts of our business. In particular, it is very pleasing to have grown Mecca’s retail bingo business, on a like-for-like basis, both at the top and bottom line, giving us renewed confidence in its future.’
• Amazon missed analyst Q4 estimates by $200m despite a 21.8% rise in net sales to $35.75bn and record profit of $482 for the three months to 31 December. Full year profit fell short of expectations by almost 18% at $596m as the online giant ramped up its operating expenses by almost 18%.
• Microsoft shares rose in after-hours trading after reporting strong growth in its cloud computing and mobile apps businesses. Cloud revenue rose 5% to $6.3bn. Profit for the three months to 31 December fell 15% to $5bn (£3.4bn) as the strong dollar and falling PC sales took their toll, although this too was better than expected.
Finance & Markets:
• ONS figures show the UK economy grew by 0.5% in the three months to the end of December, bringing the annual rate of growth for 2015 to 2.2%. This compares to 2.9% in 2014 but is in line with IMF forecasts and still makes the UK one of the fastest growing developed nations, although there are concerns as to whether this rate is sustainable as long as the global economy remains fragile.
• Spanish unemployment fell by 12.4% to 4.78 million last year but remains above 20%, having fallen from 21.2% to 20.9% in the last three months of 2015.
• World markets: UK & Europe down yesterday. US higher (driven by energy stocks) but Far East down in Friday trade
• Oil continues to rally. Trading at $34.25, beyond the $32 at which the CTAs said they would re-commence selling.
• The Bank of Japan has introduced a negative interest rate of -0.1%, meaning the central bank will charge commercial banks 0.1% on some of their deposits. It joins the European Central Bank in implementing negative interest rates after a narrow 5-4 vote at the Bank of Japan’s first meeting of the year last Friday. The BoJ said it will ‘cut interest rates further into negative territory’ if it is deemed necessary in reaching its 2% inflation target.
• London housing, is this the top of the market. Telegraph reports ‘opportunities in the capital are so rare that developers pay ‘finders’ fees’ to members of the public who spot homes that could be refurbished’.
This was produced for distribution yesterday: 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:
Mitchells & Butlers; simply too cheap?
• M&B’s shares are trading at around 8x earnings.
• That appears to be too low, even given the group’s issues with growth and the nature of its share register.
• The shares are up 2.3% or so at the time of writing and have risen to around 290p from their lows of 265p or so only a week ago.
• And the shares may move higher – but there doesn’t appear to be an identifiable catalyst to oblige this to happen.
• Trading, for the record, was not particularly good in Q1.
• Xmas was OK – at up 2% – but even that was perhaps a little below best hopes and, if Xmas is stripped out, it leaves early Dec and Jan looking decidedly weak at perhaps down 2% and possibly a bit more
• But the group is stepping up its Orchid spend – and this should feed through to LfL sales in due course
• We don’t want to be backed into a corner where we are waiting for ‘something’ to happen but, when the specific catalysts elude you, that’s often where you find yourself
• It can be lonely and it can take time but, at these levels, M&B’s shares simply appear to be very cheap
Pubs vs Casual Diners:
• GNK Tracker said that eating & drinking spend in Dec was flat.
• Horizons has said the same.
• Restaurant Group was somewhat downbeat (though not negative) and M&B, which is arguably the nearest to casual dining across the listed pub stocks, increased sales by 2% over the Xmas fortnight
• Interestingly it did not give a December number. We could see this being near to zero
• Marston’s was more upbeat and we hear from GNK on 10 Feb
• JDW’s sales were healthy – but its margin is an issue
• We believe that a pattern is emerging whereby pubs are outperforming restaurants – perhaps notably in the food area
• Companies that are ‘taking price’ (i.e. gouging) are seeing volumes coming under pressure whilst MARS and JDW are not.
• GNK is now a large animal but, if it splits out Hungry Horse (which is a near-casual-diner), it will be interesting to see if it bears out the above trend
• Fuller’s has updated this morning
• LfL managed it was up 5.6% at week 26, up 5.8% at week 33 and up 5.3% as at week 43.
• In tenanted, it was +3 then +4 and then +3.
• Hence, whilst tenanted may be down to rounding, with an extra decimal point to play with, we can say that managed LfLs have slowed
• Getting out the differential equations manual (to work out the last 10wks) is tough as the Xmas fortnight should be over-weighted
• However, if we suggest that the 10wks we are trying to identify had the punching power of say 14wks (effectively treble weight the Xmas fortnight), then we come up with about 4% for the most recent trading period
• Given that we believe Xmas was good (and we know that the weather was helpful, the temperature in London, allegedly, was the same on the summer & winter solstices at 15 degrees), this perhaps suggests that underlying trading was a little weaker still
• This clearly isn’t the end of London (and nor is it the beginning of the end but it may be the end of the beginning blah, blah) but it is, perhaps, something to bear in mind
Random information, hopefully not all of it useless:
• Just Eat shares had a bit of a shocker yesterday at down 9.8%. Could be Uber Eats fears or maybe it’s just the fact that it’s on a PER of c80x?
• Oil price rally supporting market. Equities in UK now back through 6,000 (in an upward direction) as we write.
• Oil price approaching $34 per barrel. This is what rallies do. They happen while you’re denying their existence.
• However (re oil) there’s little to upset the bears on the longer view. Oil down from $120 per barrel & only a few points off the bottom. Still lost two thirds of its value over the last 12mths
• Gold price rally is now at least visible to the naked eye. But price still down 9% over the last year.
• Cocoa now joined coffee as a cheaper commodity. End-2015 sharp rise now a thing of the past. Price only up 2% on a 12mth.
• Sugar, which has been one of the very few soft commodities to hold up in price, is showing some signs of rolling over. Sugar no11 now down 1% on a year and refined white sugar only up 8% having been up much more late-2015.