A Day in the Life:

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

So it’s getting lighter in the mornings and it’s not raining for once so why is it that the markets keep on going down?

Fair enough, they broke a 7dy losing streak yesterday but they’re forecast to fall again today and Langton, for one, has had enough of it.

Because yes, we have corporate bond spreads rising, yes we have structural deficits (US – China, US domestic deficits, UK’s trade imbalance etc.) and yes we have something of a pension time-bomb out there but come on, surely enough is enough?

And maybe some of the banks have been getting back to their old tricks, asset price bubbles have inflated in London and elsewhere and interest rates have been held artificially low for the best part of a decade. The US dollar may be artificially strong because of its (waning) role as a reserve currency and, and, well, and…

Serves me right for thinking about it too much. On to the news:

Enterprise Inns, AGM Update, 19wks to 6 Feb 2016:

Enterprise has today updated on trading for the 19wk period to 6 Feb and our comments are set out below:

The group has achieved ‘strong trading with improved like-for-like net income growth.’

It says that the ‘implementation of [its] strategic plan [is] on track’

The group says ‘we have made a strong start to the financial year with like-for-like net income in the leased and tenanted estate growing by 1.6% for the 19 weeks to 6 February 2016.’

It adds ‘this performance has been achieved as a result of stabilising rental income, growing income from beer sales and driven by the provision of operational support and commercial benefits to our publicans.’

Operational & Strategic Highlights:

Enterprise reports ‘the execution of our strategic plan for the business, announced on 12 May 2015, is on track.’

It says ‘the trading performance and expansion of our managed house operations is progressing in line with our plans and we expect to have in excess of 100 managed houses operational by 30 September 2016.’

Enterprise adds ‘in addition we continue to grow our portfolio of quality commercial properties and expect to have over 300 such properties by the financial year end.’

Overall, CEO Simon Townsend reports ‘we are pleased to have made a strong start to the year, delivering continued growth of our leased and tenanted business, and this provides us with confidence that we are on track to deliver our expectations for the full financial year.’

Mr Townsend adds ‘furthermore, we have made good progress executing our operational strategy while recruiting and developing the organisational capabilities necessary to achieve our strategic objectives.’

Langton Comment: Enterprise has reassured that its transformation remains on track and its trading is in line with expectations.

However, the group’s shares have been extremely weak lately, largely on debt concerns.

This being a trading statement, there is no guidance on debt, specifically on the repayment preparations for the £70m odd of Unique debt that needs to be repaid in each of this year, 2017 and 2018.

The group’s shares have almost halved since their recent peak in May last year. They are now extremely cheap on an EPS basis but, with bond spreads rising, some would-be shareholders may need to see progress on debt talks before they make a commitment.

The News:

Pub, Restaurant & Drinks Producer News:

• DP Poland has updated on trading for its full year to end-Dec saying that it has had 13 consecutive quarters of double digit LfL system sales growth

• DPP says ‘total stores EBITDA positive every month in 2015. Store roll-out extends to 5 cities.’

• DPP says it is maintaining strong like-for-like sales at +16% with LfL gross profit +27%. It had five stores that were EBITDA positive every month last year and its top three corporate stores averaged £58k in EBITDA in 2015.

• DPP opened 6 stores last year in 5 cities. It has ‘more stores currently under construction’ and says it has ‘a pipeline of significant further openings planned for 2016’. Its sub-franchisees are also opening new units. CEO Peter Shaw reports ‘like-for-like sales continued to deliver double digit growth and total stores were EBITDA positive every month in 2015, a notable milestone for Domino’s Pizza in Poland. We now have stores in 5 Polish cities, further stores under construction and a pipeline for significant further openings in 2016 in new and existing cities. The contribution from our new commissary is ahead of expectations, delivering improved food costs and growing sales to sub-franchised stores.’ He concludes ‘2016 has started strongly with robust like-for-like system sales growth in January.’

• Pernod reports H1 numbers, says it has produced a ‘solid’ performance. Organic sales +3% & FY guidance confirmed.

• French wine & spirit sales were buoyed last year by strong demand and a decline in the Euro. Exports hit €11.75bn, up 8.7% on 2014

• Burger King is to sell hot dogs via its US stores. It said that adding the product was “the most obvious product launch ever.” It will sell hot dogs in 7,100 stores in the US. The group reintroduced “chicken fries” last year having first launched them in 2005.

• Tesco has bought the outstanding shares (51%) in coffee chain Harris & Hoole that it did not already own. Tesco is reported as saying ‘we can confirm we have acquired full ownership of Harris & Hoole. We have worked successfully with Harris & Hoole since investing in the business three years ago and will continue to partner with the management board in the future.’

• AB InBev has reported that it has received a binding offer from Asahi Group Holdings to purchase Peroni & Grolsch. The company says the sale will include the brands’ ‘related businesses (excluding certain US rights)’.

• BP is to convert additional petrol forecourts to its Wild Bean 2.0 format this year reports the M&C

• ALMR CEO Kate Nicholls has called for more targeted action to reduce costs for licensed hospitality businesses. She comments ‘although we are seeing attempts at a reduction in costs, beer duty for instance, many pubs and bars have simply not been able to cut prices and pass that saving on to customers. The reality is that the token gesture of a penny cut in duty, however well-intended, will be absorbed by other costs and it is these that need addressing above all else.’ She says ‘licensed hospitality venues are facing a perfect storm of increasing wage costs, exorbitant businesses rates and real and significant beer price inflation. Further cuts to beer duty in this year’s Budget Statement may also have the unintended effect of widening the gap between the on-trade and supermarkets not faced with such costs but still benefitting from a duty cut. We are looking
at falling levels of consumption in the on-trade and an off-licence and supermarket sector that is booming.’ She concludes ‘if the Chancellor is serious about helping pubs, bars and nightclubs, then we need meaningful reform directed at a retail level to address the issue of rising costs in the on-trade.’

• Licensing solicitors John Gaunt point out that proposed changes to the Policing & Crime Bill would allow Licensing Authorities (and not just the Courts) to suspend or revoke personal licences. Proposals would also amend the definition of alcohol to include powdered and vaporised alcohol.

• Greene King is reported set to de-list Sharp’s Doom Bar, Fuller’s London Pride and a number of other beers post its Spirit purchase

• The courts have upheld the Gambling Commission’s decision not to grant Greene King a bingo license

• Analysts HIM have said that retailers are failing to capitalise on meal occasions. HIM says that only c40% of c-store retailers offer coffee or hot food to go, and only 6% plan to invest in these areas. It says only 18% of shoppers visit c-stores for food to go suggesting there is a “massive opportunity” to grow share.

Leisure Travel:

• Thomas Cook updates on Q1, says it has made a ‘good start to the year despite challenging trading conditions’

• TCG Q1: Says revenues £1.4bn vs £1.5bn last year. Loss from operations £78m vs £73m last year, net debt £1.2bn

• TCG Q1: Says it has seen an ‘improved Q1 performance in line with expectations’. Says it is focussing on higher margin product

• TCG Q1: Group is seeing ‘further growth in demand for higher margin differentiated holidays’ with ‘robust customer demand in UK and Northern Europe [which] offset tough trading conditions in Continental Europe and Airlines Germany’

• TCG Q1: Current trading is ‘resilient despite market disruption’. Group is 82% sold for winter ‘with significantly higher pricing’

• TCG Q1: Summer 2016 programme is 29% sold, 2% less than last year, ‘with firm pricing in most source markets’

• TCG Q1: Group is seeing ‘clear signs of recovery after customer confidence impacted by the tragic events of Paris and Istanbul’

• TCG Q1: CEO Peter Fankhauser reports ‘we’ve made a good start to the year, despite challenging trading conditions. Having acted fast to offer our customers a broad range of alternatives to Tunisia and Egypt, we delivered a 1 per cent increase in revenues in the first quarter.’

• TCG Q1: Margins are higher with CEO Fankhauser saying our ‘Northern European business continued to see strong customer demand over the three months, while the turnaround in our UK business delivered further improved results.’ The group concedes ‘our businesses in Germany continued to face tough trading conditions in a very competitive market.’

• TCG Q1: Group concludes ‘Thomas Cook is now a significantly stronger and more resilient business, and we are well positioned in a challenging market. We are maintaining our previous guidance for the 2016 financial year, provided that the recent recovery we have seen in customer confidence is sustained.’

• TTG reports Gatwick has opened talks with contractors about building a 2nd runway despite not having yet secured government approval

Other Leisure:

• Time Warner reported a drop in quarterly revenue due to disappointing subscription revenue for HBO & Turner television. The group’s shares fell by almost 10%.

• Twitter shares fell after hours Weds as the co reported that user growth was slowing. It reported a net loss of $90m for Q4 last year. The group had 320m active monthly users over the quarter, the same as in Q3. Revenues rose to $710m.

• Brits cancelled trips to Paris Disneyland in the wake of the Nov 13th attacks reports Eurodisney. Euro president Tom Wolber reports ‘we experienced strong demand leading up to the November 13 events in Paris, following which we experienced booking cancellations.’

• Hornby shares Weds fell by 60% from 81p to 32p as the group reported that losses would widen on the back of disappointing recent sales

Finance & Markets:

• NIESR has estimated that UK GDP rose (on a non-annualised basis) by 0.4% in the 3mths to end-Jan. It rose 0.5% in the 3mths to Dec

• World markets: UK & Europe up yesterday but US markets mostly lower. Far East down in Thurs trade

• Oil down a little yesterday at around $30.65 per barrel

• A surge in demand for houses from buy-to-let purchasers ahead of April’s 3% stamp duty may push up prices says RICS. Some 74% of respondent agents have told their professional body that they expect prices to rise before April.

• UK industrial output fell sharply in December as warmer weather & oil-related demand issues led to lower orders

• Industrial output 1.1% down in Dec vs Nov.

• Fed’s Yellen tells Capitol Hill that tightening financial conditions + China fears pose a risk to the US economic recovery. She said ‘there is always a risk of a recession…and global financial developments could produce a slowing in the economy.’ She added ‘I think we want to be careful not to jump to a premature conclusion about what is in store for the U.S. economy. I don’t think it is going to be necessary to cut rates.’ The Fed only put them up in December

Retail Roundup from Nick Bubb:

Grocery Market Share Watch:
After all the focus last week on its plans for Argos, it was interesting to see that the Sainsbury core business is still outperforming its peers, according to the latest monthly Kantar Grocery market share figures on Tuesday morning: over the 4 weeks to Jan 31st Sainsbury edged up to +1.1% gross, with Tesco -0.4%, Morrisons -2.7% and Asda as much as -4.3%, whilst Waitrose was -0.1% and Aldi/Lidl were up by an impressive 18.4%. The caveat must be that Kantar reckoned that overall industry sales growth picked up to +1.7% in the period, which is certainly not what the BRC-KPMG sales figures implied for Food Retailers last month (as we flagged on Tuesday) and not what Kantar’s rival Nielsen said either (Nielsen said that sales fell by 0.6% in value terms, which is much more bearish)…In their monthly overview, Nielsen highlighted that last month saw the “biggest
year-on-year decline in volumes purchased since Nov 2014” and noted the “increased promiscuity” in shopper behaviour, flagging that “Asda, in particular, is being impacted by this disloyalty as low prices are no longer a clear differentiator when so many supermarkets price match”. The Kantar monthly overview noted that over the 12 weeks to Jan 31st, for the first time since 2011, the Co-op was the fastest growing non-discounter, increasing gross sales by 1.4%.

New Look:
The fashion chain New Look was bought by Brait, the South African investment vehicle of Christo Wiese, back in June last year, but it is still producing quarterly reports and on Tuesday it reported some good-looking Q3 sales for the 13 weeks to Dec 26th. Adjusted EBITDA is running 6.4% up, at £205.0m, in the 39 weeks to date of y/e March and the company said that Christmas trading was robust (despite the warm weather), with New Look UK LFL sales in the 7 weeks to January 2nd up by 3.2%. Anders Kristiansen, the CEO, said: “Our preparation and readiness for the peak trading season ensured we delivered good results, despite the highly promotional environment in the UK, including the competitive challenges generated by Black Friday. I’m pleased with our progress in China…and the continued good performance of our new standalone Menswear stores in the UK”.

Topps Tiles is hosting a site visit for analysts today at its new “lab store” in trendy Shoreditch, which features a range of new display and merchandising treatments inspired by the Topps Tiles Boutique smaller store concept.  The visit will include a store tour and discussion with senior management, but no new trading information will be disclosed….Nick Bubb – nicholas_bubb@hotmail.com

Wednesday Wrap:

This was produced for distribution Friday 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:

Greene King Q3 update. Takeaway points:

• See earlier email for more detail.

• We would pick out the fact that Q3 numbers, for managed, tenanted and beer, were all better than their H1 counterparts. See email. These were modest increases but are a sign of acceleration nonetheless.

• There is no comment on margin. Nor are the words ‘bank’, ‘debt’ or ‘borrowing’ used in the statement.

• Marston’s (26 Jan) and M&B (28 Jan) both recently said that margins were higher. JD Wetherspoon (20 Jan) said that its own margins were down by 1.1% on the same period last year

• Xmas itself was very strong. This supports the contention of the trade that the ‘big days’ continue to hold up.

• The group says that trading is in line. Hence we would not expect to see changes to forecasts as a result of today’s statement.

JD Wetherspoon:

• Group continues to buy back shares.

• Yesterday, the company bought back 150k shares at 678p for cancellation.

• The group has now bought back 970k (0.8% of the shares previously outstanding) shares for a total of £6.2m since its trading update on 20 Jan.

• The group has paid an average price of 634p, some 7.5% below today’s level.

London hotels:

• We’re hearing here that the market is difficult.

• Whitbread’s share price, though the group until recently has not been a major player, is reflecting this.

• It’s hard to legislate against gouging.

• Hoteliers will charge what the market will stand – but then along comes payback.

• The top of the market, maybe a year ago, features rising room rates and occupancy.

• It’s a win-win.

• But then occupancy stalls and declines. Rates go up further and REVPAR continues to increase. But it is rate rather than volume-driven.

• Then one or more players, usually those with gearing, cuts rates.

• The individual hotelier performs well but, before long, competitors have to follow suit and rates fall across the market.

• Towards the bottom, maybe a year or two from now, rates and occupancy are both falling and there’s real distress.

• And then the cycle turns again, occupancy starts to rise. Initially, operators do not dare to jack prices but, before long, they do – and it all starts over again.

• Fuller exposition will go out to clients later.

Crowd-funding:

• Current thoughts will go out to clients later.

Stockbrokers:

• Just when they think it can’t get any worse (soggy markets and Mifid II etc.), it does.

• IPO market could go into hibernation, government has already said that it’s Lloyds sale won’t be happening any time soon.

Oil prices:

• Oil has a nasty correction, is currently attempting to regain its poise.

• Putting this morning’s move into context, the price fell by 13% in 3 trading sessions and it has now bounced by around 2%

• Yesterday, perhaps unsurprisingly, Carnival, Intercontinental Hotels and International Consolidated Airlines were three of the relatively few FTSE100 shares to end the day in positive territory

Random information, hopefully not all of it useless:

• Market looking to break its 7-session downward move. As at time of writing, looks set to do so. Yesterday we were close to 3yr lows.

• No help in this from Japan. Now down 8% in two sessions & down around 15% in a couple of weeks.

• Janet Yellen heads to Capitol Hill today as she will give two days of congressional testimony.

• Sterling down yesterday as traders struggle for direction. Sometimes, however, there is no direction…

• Commodities. Oil down, gold up, non-precious metals flat & softs weak

• Observation. The natural first reaction of anybody with an interest in a market, political situation etc. to change is ‘it doesn’t really matter’. That’s what we’ve heard with respect to corporate bond spreads. It’s just the oil stocks, some say. Then why are the banks falling? Why is credit costing more at a time when inflationary expectations and gilt yields are falling?

• Truisms. Tighter money leads to lower asset prices.