Langton Capital – 2016-02-03 – Daily Wrap: Interest rates, holidays, market evolution & 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:
Interest rate expectations:
• Why do we pay these people so much?
• Expectations for the number of rate rises in the US in calendar 2016 now range from 0 to 4.
• Given that rates tend to move in the quarter-end months, it would not really be possible for there to be a wider spread.
• That said, what does it mean?
• Well the currency markets etc. will be lacking guidance because it means that some credible commentators are now expecting the Fed to leave rates where they currently stand for at least a 12mth period
• Reading backwards from that, there is the implication that global growth could slow – and that will impact oil prices, equity prices and the rest
Evolution in the leisure industry:
• As we have said on a number of occasions, change is the only constant.
• Today (in earlier email) we carry stories that 1) popcorn may be replacing crisps as consumers search for a healthy (or less unhealthy) option, 2) Dry January impacted trading this year more, perhaps, than it has in the past, 3) Amazon is set to open 400 physical book stores and 4) Choice Hotels may enter the ‘sharing market’ and presumably take on Airbnb head-to-head.
• Hence we can see that some operators are putting their shareholders’ money where Langton’s mouth is.
• Evolution may arguably be split between a) disruptors and b) market share stealers.
• Airbnb, Uber, Deliveroo etc. may fall into the former category
• Whilst Amazon (with bookshops), McDonald’s (with table service), Burger King (with alcohol), Choice Hotels (with a ‘sharing model’) fall into the latter
• We don’t have numbers to evidence the volume of would-be disrupters who go bust – but we would hazard to guess that there are more operators willing to try to steal a larger share of an existing cake than there are innovators who truly add something completely new
Holiday market – volcanoes, terrorism, SARS & now the Zika virus:
• We (and the stock market) are torn two ways on leisure travel stocks.
• We believe that the market for leisure travel is a premium-to-GDP growth industry
• This is particularly the case in developing or nearly developed economies.
• Spending a week on the beach will rank behind buying a fridge, but probably ahead of buying a second fridge for the den
• But there are many other factors that suggest, to us at least, that leisure travel companies should maybe not trade on a market rating. Let alone a premium
• Weather, terrorism, accidents, currency movements, oil price shifts, health scares (avian flu, SARS and now the Zika virus to name but a few) and random acts of God such as volcanic eruptions can make a mockery of the best-laid plans and earnings can be ruined via action from left-of-field
• With the above in mind, we would point out that, whilst TCG trades on a 2016 multiple of c9x, TUI’s shares are trading at around 13x this year’s earnings
Random information, hopefully not all of it useless:
• Market scheduled earlier to open down 40pts. Narrowed the loss & got to a dozen or so points down before falling for real. Down c57pts at time of writing.
• Oil has apparently just had its worst two days (in % terms at least) for about 7yrs.
• Sterling markedly stronger against both US$ and Euro. To put this in context, however, Sterling has still weakened (against both) by around 10% since the beginning of December last year.
• Gold bugs will be crawling out of their holes as the rally in the metal is now distinctly noticeable. Gold is still down c8% over the last 12mths, however.
• Coffee, cocoa weak. Sugar strong and Hog prices continuing to rally. Latter serves as a proxy for white meat.
We’re so 21st Century, this morning’s Tweets (diff. font size denotes importance):
1. Imbiba Partnership announces new concept. Is to launch BBQ, steak & wine units featuring celebrity chef Neil Rankin.
2. Chipotle sales for Q4 last year were hit by E.coli health scare, reports the company. Sales down 6.8% to $997.5m in the quarter
a. Chipotle has reported Q4 net income down by 44% at $67.9m due to reduced sales on health concerns
3. Report from Mintel suggests popcorn may become more popular than the potato crisp as consumers look for healthy options
4. Risk Capital Partners-backed Red Hot World Buffet is thought to have placed two of its six sites, in Leicester and Nottingham, on the market
5. Draft House founder Charlie McVeigh has told the PMA that the Dry January effect on the pub trade is beginning to fade.
6. LVMH has reported stronger-than-expected Q4 numbers with resilient dales in Europe, Japan and the United States
7. Sushisamba will replace Brasserie Blanc at Covent Garden’s Opera Terrace and will put £4m into designing and developing the site.
8. Amazon is reported to be set to open as many as 400 physical bookstores per comments from a major American shopping centre operator.
9. Royal Caribbean reports FY numbers, says earnings of 483c were +42% over 2014. Group targeting around 600c this year.
a. RCL says costs excluding fuel were down 0.6% on a Constant-Currency basis & yields on the same basis were +3.5%
10. Trade press reports Zika virus fears are keeping some would-be UK holidaymakers from visiting affected areas
11. Choice Hotels is considering entering the ‘sharing economy’ reports STR. It could put 3rd party properties on a platform
12. Eurozone unemployment fell to its lowest rate in over four years in December as the jobless rate dropped from 10.5% to 10.4%.
13. Oil price lower at around $32.60 per barrel. US stock levels per latest American Petroleum Institute report