A Day in the Life:

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

**LOST EMAILS – Yesterday Langton managed to permanently delete all the emails in its inbox. Thankfully, many had been filed in folders but, if you mailed yesterday prior to about 3pm, could you please resend whatever it was you pinged us as otherwise we won’t be able to respond – LOST EMAILS**

So, said the idiot, why don’t they make these things more, well, idiot-proof?

And I don’t know, perhaps they should. Because I certainly would have paid a quid or two to avoid the horrible, churning feeling that I felt in my stomach when I hit the ‘permanently delete’ button whilst at the same time, bizarrely, holding down CTRL and A (for All) after which everything on my screen disappeared and, as the warning had told me before I hit the return button, it was never coming back.

Well that’s one way to clear your inbox, I suppose but, as the good, the bad and the indifferent all went the same way, there was a certain lack of discrimination involved and I’ll try not to do that again in a hurry.

We need to have a serious word about MIFID II and how it will impact this email at some point later this week but, for the moment, let’s move on to the news:

The News:

Pub, Restaurant & Drinks Producer News:

• Greene King has announced chairman Tim Bridge to retire, Philip Yea to chair the board from 2 May. Group says ‘the board of Greene King plc announces that Tim Bridge, chairman of the company, will be retiring from the board on 1 May 2016, after 11 years as chairman and over 45 years’ service with the company.’ It continues ‘the board is pleased to announce that Philip Yea is joining the board on 2 February 2016 as a non-executive director, and then will take over as chairman on 2 May 2016.’

• Greene King: Tim Bridge reports ‘I joined Greene King in 1970 and have been the chairman since 2005, following more than ten years as the chief executive. I feel very fortunate to have spent my whole career working for a great company which has grown from being a regional brewer to one of the UK’s leading pub hospitality companies. We have achieved this with an outstanding team of people and I feel confident that, through them, and with Philip Yea replacing me as chairman, the company will continue to prosper in the future.’

• GNK chair. Senior NED Rob Rowley reports ‘we would like to thank Tim Bridge for his excellent and extensive contribution to the group, spanning over 45 years. He has done an outstanding job as chairman and it has been a real pleasure working with him. His experience and advice, coupled with his deep commitment to the success of the business have been invaluable and the Board and I wish him a happy and healthy retirement.’ He continues ‘we are also very pleased that Philip Yea has agreed to join the board and to take over from Tim as chairman from May. He has a wealth of industry knowledge and I am sure that his wide expertise, business experience and personal qualities will contribute greatly to the future and continued success of the group.’ Philip Yea is currently senior independent director at both Vodafone Group Plc and Computacenter PLC and also a
non-executive director of Aberdeen Asian Smaller Companies Investment Trust plc. He has recently stepped down as chairman of bwin.party digital entertainment plc following the successful completion of its acquisition by GVC Holdings.

• JDW has announced that yesterday it bought back a further 78k of its own shares at an average of 680p

• Crowdfunding. Harry Brompton has raised £87k of its required £300k with only four days to go. Meanwhile Red Squirrel Brewing has raised £221k of its intended £500k with almost three weeks left on its offer.

• CGA Peach data has suggested that the number of licensed premises in Scotland rose in the last year by 86 units (+0.8%). This would reverse a longer running trend that has seen Scotland lose 1.9% of its licensed premises over the last five years. some 76% of licensed premises are classed as independent free trade units.

• Peter Backman, managing director of foodservice analysts Horizons, has said operators must build a ‘bank of goodwill’ in anticipation of another recession. The advice is particularly pertinent for gastropubs, Backman said, adding: ‘It was independents – and also the group operators who heavily discounted and shouted ‘we’re cheap’ – that suffered [in the previous recession] because they didn’t have economies of scale, the marketing wasn’t so effective and they didn’t necessarily have the skills or ability to buy more cheaply.

• Horizons research. ‘Like in the last recession, gastropubs found it quite tough because they’re expensive. At the very top end of the restaurant sector there was no recession at all, but it was the next level down, the £25 to £50 per head level, that suffered. There were people for whom meals in those establishments were aspirational but if they didn’t have the money, they could do without it. So instead of going to a gastropub they would go somewhere not quite as smart.’

• Cheltenham’s late-night levy is to be scrapped after the scheme failed to raise the expected amount since its introduction in 2014. Only 123 of the hoped-for 218 licensed premises paid the levy as operators changed their opening hours and handed in their licences. The council collected just £76,889 in its first year compared to an expected £199,000. The scheme will be replaced by a business improvement district, which spreads the burden between all businesses rather than just late-night operators.

• Domino’s UK’s joint venture with Domino’s Pizza Enterprises in respect of the group’s struggling German business has received approval.

• The British Institute of Innkeeping has announced that Mike Clist (formerly of Fuller’s) will become its new managing director from 1 April 2016. The new position is part time.

• Intertain has commenced another year of revamping its Walkabout brand with a £450,000 refurbishment of its flagship Birmingham Broad Street bar. Intertain chief executive John Leslie said: ‘Walkabout has been on a journey in the last year, with new venues launching as well as a number of refurbishments taking place; the refurbishment of Walkabout on Broad Street indicates that this investment in the brand is set to continue in 2016 and beyond.’

• Artisan pizza chain Franco Manca is expanding beyond central London after making a deal for a site near the Intu shopping centre in Bromley. The site was previously run by Stonegate Pub Company. ‘In line with our close working relationship with Franco Manca we proposed the site. T interested them immediately and we are pleased to see the brand continue its expansion plans in London,’ commented joint managing director Nick Weir.

• EasyJet founder, Sir Stelios Haji-Ioannou has entered the competitive budget grocery sector with the trial of his first easyFoodstore shop. The shop, located on Park Royal West in Zone 3 of London, is selling all of its grocery items for just 25p throughout February.

• SBRY has announced indicative terms for HOME. Is 0.321 shares (currently 244.6p) plus 55p, plus c27.8p. Equates to 161.3p

• Ocado grew revenue by 16.7% to £1.1bn in the 52 weeks to 29 November 2015, with EBITDA up 13.8% to £81.5m and net debt up from £99.4m to £127m. Although a deal with an international partner has failed to materialise, Tim Steiner, CEO, expects to sign in ‘multiple territories in the medium term.’ No mention is made of a deal in the short term, however. Active customers rose by 12.4% to 509,000 and order volumes grew by 16.8% to an average of over 195,000 a week, although the average basket value fell 2.1% to £109.95 after being impacted by food price deflation and increased mix of standalone orders for Fetch and Sizzle. Own-label sales were up by 16.8%. Looking forward, Ocado hopes to get an international deal signed and to keep growing ahead of the market. The group expects capex this year to reach c£150m.

Leisure Travel:

• Kuoni Board unanimously recommends takeover by private equity company EQT to shareholders. Price CHF370 per B share.

• Kuoni says ‘the transaction enables Kuoni Group to further develop its position as a leading, focused and global travel services provider by investing in technology, in its enhanced service portfolio and in the acquisition of other businesses.’ Exiting shareholders, however, may care more about the price.

• Kuoni says ‘today’s announcement follows a competitive process with EQT as well as a number of other interested parties over the course of several weeks.’ It says ‘as a long-term investor, EQT will strengthen and expand Kuoni Group’s global business activities.’ It says ‘EQT is one of Europe’s leading private equity houses founded by Investor AB, Scandinavia’s largest industrial holding group and part of the Wallenberg Group. EQT is committed to invest in the continued development of the Kuoni Group in order to enable the company to grow and strengthen its position as a leading service provider to the global travel industry and governments and to further increase its profitability.’

• Kuoni says group CEO Zubin Karkaria together with the current management team will continue to lead the company. This can on occasion lead to conflicts of interest between exiting shareholders, who want the price high, and remaining executives, who are interested in future growth.

• Kuoni chairman Heinz Karrer comments: “Over the last months the Board has very carefully analysed all strategic options in order to secure the successful implementation of Kuoni Group’s strategy. As a result of this detailed and comprehensive analysis and a competitive process, the Board concluded unanimously that taking Kuoni private and handing over the responsibility for the group to an internationally renowned new owner with comprehensive experience in managing and further developing industry leaders, with the necessary financial strengths and with a long term perspective would be the ideal solution to the benefit of all stakeholders. EQT fulfils all these requirements in the best possible way.”

• Sandals Resorts International is in talks to open two new resorts on the east coast of Mexico to add to its current all-inclusive resorts in the Bahamas and the Caribbean.

• Ryanair expects average fares to fall 6% in the next quarter as it delivers oil price savings to customers in major markets. In the three months to 31 December, the budget airline saw profits jump 110% to €110m and passenger numbers grow by 20% to 24.9 million.

• Swedish venture capital firm and prospective new owner of Kuoni Group, EQT Partners, is the favourite to acquire Hotelbeds from Tui Group for £800m.

Other Leisure:

• Yahoo is to cut 15% of its workforce per the WSJ.

• Mobile messaging app WhatsApp is now used by 1bn people every month.

• Twitter shares volatile on reports, since denied, that a PE house was interested in buying the company

Finance & Markets:

• World markets: UK and Europe down yesterday. US mostly down and Far East markets lower in Tues trade

• Oil price down after recent bounce. Now trading at around $33.60 per barrel.

• UK mortgage approvals rose in December to 70.8k. This is well off the 40k to 50k lows seen in the aftermath of the credit crunch, but it remains below the 2007 and 2008 numbers of over 100k per month.

• The UK Purchasing Managers’ Index rose to a three-month high of 52.9 from 52.1 in December as manufacturing growth beat expectations. Exports declined, however, and the domestic market continues to be the engine of growth for the wider UK economy.

Retail Roundup from Nick Bubb:

Sainsbury/Home Retail :
The “PUSU” bid deadline was at 5pm today, but it has been announced that the Takeover Panel has granted a 3 week extension, to allow due diligence etc on the agreed deal between the 2 companies, which values Home Retail at precisely 161.3p, in a shares and cash deal. Of that, 25p is the Homebase capital return already announced by Home Retail, 2.8p is the final dividend and 55p is cash from Sainsbury’s, with the balance comprising 0.321 new Sainsbury’s shares for every 1 Home Retail share. Together that enables Sainsbury to claim that it represents “a premium of approximately 63% to the closing price of a Home Retail Group share on 4 January 2016, the last business day prior to the start of the offer period”, but much will depend on how the Sainsbury share price (which closed last night at 245p) responds to the news. There is a short conference
call at 8am.

Ocado: Today’s finals for y/e November contain a lengthy statement from Ocado, with Tim Steiner, the feisty CEO, saying: “We are pleased to announce results today which illustrate the progress Ocado has made through its clear focus on innovation and customer service”. But with an update expected on the vexed subject of the long-awaited Overseas licensing deal, the key sentence is that “Discussions with multiple potential international partners to adopt the Ocado Smart Platform solution continue and our confidence in signing a deal remains high”. The analysts meeting at 9.30am should be interesting…

Sports Direct Watch: Just to annoy Mike Ashley, Findel has announced today that it has sold its sports business Kitbag to the US business Fanatics for £11.6m in cash. Nick Bubb – nicholas_bubb@hotmail.com

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:

Déjà vu: JDW still buying shares back:

• JDW still buying shares back & it turns out the £3.8m that the group spent buying its shares back at 613p on 20 & 21 January was money well spent.

• Not likely that the vendors of the stock will feel the same way, however.

• As mentioned last week, JDW is going on with its buyback as high as 672p. It has now spent £4.45m buying back stock at a very attractive average price of 619p.

• The co is putting its money where its mouth is. Actions speak louder than words, etc. and it is clear that JDW currently believes its own shares offer better value than does spending the equivalent amount of money on new pubs

• Any shareholders who would prefer to see a special dividend 1) will have to wait in line and 2) should know better than to wish for such things in the first place

Whitbread:

• Silly, but it may be worth remembering that WTB is a February year end.

• Hence FY16, the year to which people most frequently look when discussing valuation, is about to end.

• WTB’s shares trade at around 17x FY16 but a ‘much-more-reasonable’ 15.1x earnings for Feb 2017

• Observers will be concerned that Costa could stall in China and/or the UK hotel market may be on the turn

• But the group, unlike most UK leisure stocks, has brands with international potential and its shares are down by around 27% from their mid-2015 peak of £55.

Oil price:

• Rally has built upon itself & Brent now trading at >$35.

• This is still pitifully low on a medium view but, compared with the c$27 rate seen a couple of weeks ago and talk that it was headed straight to $20, it does qualify as something of a rally

• Given that shares have been reacting in a rather unsophisticated manner recently, it would not be surprising to see travel stocks, TUI, IAG, CCL etc., give back a bit of ground on what looks like a sustained upward move

Random information, hopefully not all of it useless:

• Interestingly, Punch shares have outperformed those of Enterprise by as much as 40% over the last 12mths

• Fuller’s share price has been outperforming that of Young & Co recently. We believe that trading at both companies will have been much more similar than it will have been different.

• See our LRI and FRI in earlier email.  High beta stocks, or at least those that have had major falls recently, performed last week. We’re thinking of Domino’s and Pat Val in the leisure space and Bookers in the FRI.

• The additional Morrison’s price cuts of up to 20% will put more money back into consumers’ pockets.

• UK equity market tried to go better this morning. Forecast to open 49pts higher, it’s down around 30pts at time of writing on China fears.

• Sunday Telegraph has flagged up that Lidl has ramped up its expansion plans in the UK by issuing almost three times as many planning applications as Aldi for new supermarkets in the last quarter of 2015.

• Sluggish economic growth in both the US and UK (and in China) suggests that interest rate increases may come later rather than sooner

• UK All Share Index said to be close to its 50dy moving average.

• Sterling settling. Seems to have bounced off recent lows, re-tested & bounced again. Could be stable for a while at these admittedly lower levels.

• Commodities showing a bit of life. Admittedly many of them are lapping weak trading a year ago. Gold price, though still down 9% over the last 12mths, has recently been showing a bit of life.

• Cocoa rolled over but sugar still strong. Cocoa up 6% over last year but down sharply on 3mths. Sugar up 12% on a 12mth view.

• Soy (an input cost) still very week but pig prices (proxy for white meat) showing signs of life & now up 2% over the last 12mths