A Day in the Life:

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

So the Mighty Hull City’s second team destroyed Arsenal 0-0 at the Emirates on Saturday.

At least our goalie did and now both teams have a problem with fixture congestion when it comes to organising the rematch at the KC.

I mean Hull is pushing for promotion this season. We could actually head the division, would be the first silverware in a couple of generations and even Arsenal, which is not fighting a relegation battle this year, probably has more matches than it knows what to do with.

But anyway. I suppose it’s an embarrassment of riches and, for the moment, with the Half Term now definitively behind us and the run-in to Easter to look forward to, let’s move on to the news:

The News:

Pub, Restaurant & Drinks Producer News:

• Soho House shareholders have been told that they must stump up £20m in equity if banks are to increase overdraft from £25m to £35m

• Soho House is currently 60% owned by US tycoon Ron Burkle, 30% by Richard Caring and 10% by founder Nick Jones

• Moody’s puts Soho House bonds on review. Accepts strong cash-flow but suggests that rapid expansion is eating cash. Moody’s says ‘the review reflects the company’s narrowed liquidity profile ahead of its April 2016 interest payment on its senior secured notes due 2018 and uncertainty about the impact of its recent bondholder consent solicitation.’ It accepts ‘Soho House’s business is strongly cash flowing on the operating level; however, the firm is also in a growth mode, thus consuming more cash than its operations generate.’ It says ‘as a result, Soho House’s liquidity is the weakest feature of its credit profile, currently, with only GBP2.5 million available on the revolver and GBP8.5 million of cash on balance sheet. The proposed consent solicitation would provide Soho House with much needed liquidity via an increase in the revolving
credit facility (RCF) and equity contributions, while marginally increasing the company’s leverage. Assuming the proposed series of transactions are executed as outlined in the consent solicitation statement, the company would receive the required liquidity for the next 12 months. However, uncertainty remains over the timing and assurance of equity contributions. Should they not materialize, the company could encounter liquidity challenges and the ratings would likely be lowered.’ Soho House attempted but then pulled the issue of a £200m bond ion September last year.

• Moody’s says ‘during its review Moody’s will continue to closely monitor Soho House’s liquidity, in particular, the receipt of equity funds as detailed in the consent solicitation balanced against planned capital expenditures. For the outlook to revert to stable, the company would have to find a way to finance itself through 12-18 months without frequently recurring liquidity-oriented transactions, such as the bond tap in December following closely on the heels of a PIK not issuance, as well as the current consent solicitation. Stable and profitable operating performance would also be needed for a stable outlook.’

• Scientists at Washington State University have found that drinking wine just before bed helps people lose weight thanks to the presence of Resveratrol. The substance is credited with turning stubborn white fat into fast-burning beige fat.

• CGA and the ALMR are joining together for a new ‘Future Shock’ series of intelligence reports on the eating out and drinking sectors. The reports will make use of the considerable banks of data held by each body and provide insights for operators and suppliers across the sectors on key issues like property costs, pay, and tax.

• ‘Future Shock’. ALMR chief executive Kate Nicholls said: ‘Our aim is simple—to provide anyone with an interest in our sector with a one stop shop of information; a genuine state of the nation report. This is the first time that anyone has provided a comprehensive health check on the sector—with operational, consumer, supply chain and macro-economic insight. It means operators, politicians and the media have the key facts and fingertips in an easy to digest, bite-sized format.’

• Burger King has lost its bid to sell beer at its London Paddington and Victoria stations sites, following strong opposition from police.

• A union has blasted restaurant chain Bill’s after claims tips meant for staff did not reach them. Unite spokesman Rhys McCarthy commented: ‘It’s ¬outrageous restaurants like Bill’s appear to be pocketing this money which hardworking staff rely on to top up their meagre wages.’ A Bill’s spokesman said they are shared by a -restaurant’s whole team but cash tips go to the waiters.

• A new study of 1,000 graduates by the NUS and YouthSight shows students are increasingly more likely to go to visit a coffee shop or a study group than the local student bar. In a sign of changing times, the survey found that the most useful services for students were clubs and societies (60%), advice and support (50%) and café facilities (43%). Only 37% described bars as the most useful service.

• The Scotch Whisky Association continues to campaign for a further 2% cut in duty for Scotch whisky, which brings some £4bn in exports to the UK. The group argues that another cut in duty to the current rate of 76% will stimulate further growth in the industry.

• Craft cider and pizza chain The Stable, which is 51% owned by Fuller’s, is to open its first London site (and 14th in total) in Whitechapel this April. Its existing sites are located in Bath, Bristol, Birmingham, Cheltenham, Cardiff, Falmouth, Fistral, Winchester, Weymouth, Winchester, Plymouth, Southampton, and Poole.

• The BBPA has responded to a group of multiple operators calling its beer duty campaign ‘fundamentally misguided’.

• The Wine and Spirit Trade Association (WSTA) has described reports that attribute the UK’s rising cost of living to higher alcohol prices as ‘overinflated’.

• Lidl UK has announced it will give at least £500,000 from the proceeds of its single-use carrier bags to environmental charity Keep Britain Tidy.

• Home Retail Group has received a rival £1.4bn bid from South African retailer Steinhoff, worth more than Sainsbury’s £1.3bn offer.

Leisure Travel:

• Online travel search engine Skyscanner has announced its seventh year of double-digit growth in a row, with revenue up 28% to £120m. The group was recently valued at over £1bn.

Other Leisure:

• Ladbrokes & Wm Hill will report FY numbers this week. Both will be adversely impacted by new taxes, levies.

• The football pools is set to become a stand-alone public company, with the former COO of Owner Sportech in talks to create a new London-listed company to buy the institution.

• Playtech has decided against returning cash to shareholders and will use its £800m war chest to kick off a new round of deals in the betting industry.

Finance & Markets:

• Jan surplus in public finances may still leave HMG short on its FY (5 April) targets. The ONS reports a Jan surplus +£1bn at £11.2bn. This was the largest January surplus since 2008 but was still a little below the c£12.6bn that the City had been looking for. Borrowing for the current tax year (the 10mths to end-Jan) came in at £66.5bn, some £10.6bn lower than at the same time last year. The current forecast for the 2015/16 deficit stands at £73.5bn.

• US ‘core’ (price rises excluding food & energy) CPI rose 2.2% in the year to end-January per Labor Dept.

• Greek paper Agora has said that EU lenders are working on a debt relief programme for the country if it can institute reforms by 2022. The debt relief would initially take the form of lower interest rates and longer maturities on the nation’s debts.

• World markets: UK down on Friday, Europe also weaker. US down in later trading but Asia up in Monday trade

• Oil price little changed. Down for choice over the weekend. Trading at around $33.50 per barrel.

• Early reports suggest Euro consumer confidence took a dip in February. Certainly feels as though a slowdown is underway

Retail Roundup from Nick Bubb:

Saturday Press:
The big story in the Saturday papers was obviously the late-breaking news on Friday evening that the South African retail giant Steinhoff has trumped the Sainsbury bid for Home Retail/Argos, with a cash offer of 175p a share, and the Independent flagged our view that Sainsbury now had a fight on its hands. There wasn’t much editorial comment, but the veteran City Editor of the Daily Mail (whose main article about the bid was headlined “Africans make last ditch bid for Argos”) thundered that it would be a pity if Argos ended up in Overseas hands, whilst the Times noted that Steinhoff had the “scale, clout and experience” to be a credible counter-bidder for Argos and there would be “absolutely no shame in Sainsbury walking away” if the price gets too high. The FT had a detailed background article about the battle for Argos, headlined
“Suitors pursue Argos logistics expertise” and including a visit to the Sainsbury Crayford hypermarket where an Argos store has opened. In other news, the Times and Telegraph had snippets about the strong ONS Retail Sales figures for January and the Daily Mail noted that Moss Bros has poached Tony Bennett to be its new FD. Finally, the FT stockmarket report led with the news that Marks and Spencer was a big faller on Friday, after Macquarie argued that the business is now “in terminal decline”.  

Sunday Press:
Apart from a few snippets about the news that the UK is to hold an “In/Out” referendum on the EU on June 23rd…the big focus in the Sunday papers was on the Steinhoff/Sainsbury battle for Home Retail/Argos. The main revelation was the lead Business story in the Sunday Telegraph (headlined “Sainsbury boss under pressure”), that the CMA is likely to investigate the Sainsbury bid for Argos (delaying things for at least 6 months) and that the Steinhoff boss Markus Jooste has already struck up a relationship with Home Retail boss John Walden. The “In the City” column in the Sunday Telegraph thundered that “Mike Coupe’s high-risk ambitions appear to be hanging by a very weak thread”, whilst the City Editor of the Sunday Express said that “while the rationale behind Sainsbury’s deal for Argos is sound, Mike Coupe
cannot allow himself to become distracted by a costly bidding war”. The Sunday Times’ focus was on the likelihood that Sainsbury will ask the Takeover Panel for more time to weigh up the bid and that Steinhoff will buy a stake in Home Retail in the market if the shares stay below 175p. In other news, the Sunday Telegraph flagged that the fashion chain Joules has appointed advisers to prepare it for a stockmarket float in the spring. And Asda was still in the news, with the City Editor of the Mail on Sunday thundering that it may yet have “the last laugh”, given its sensible focus on profit rather than sales, although the Observer mocked Asda’s new austerity approach.

Sainsbury/Home Retail: With a market cap of about €18bn we must assume Steinhoff have the cash resources to fund their 175p bid and with the Conforama chain in Europe and Harveys and Bensons in the UK there are plenty of synergies in furnishings and electricals for them from owning Argos, so it looks like Sainsbury has a real fight on its hands…

Today’s Press and News:
The front pages of all the papers (not least the Telegraph…) are full of Boris Johnson and his decision to back the “Brexit” campaign, but the main Retailing focus is on the battle for Home Retail/Argos, with the Times and the Guardian, inter alia, flagging that after a weekend of conference calls Sainsbury is likely to ask for an extension to the Takeover Panel timetable and shift tomorrow’s deadline to March 18th, the same as the Steinhoff deadline. The FT has a good background piece on the situation, headlined “Time ticking away for Sainsbury’s in Home Retail bid” and suggesting that Sainsbury shareholders would jib if Sainsbury offered more than 186p a share for Home Retail. Separately, the Independent reveals that Steinhoff has admitted to being subject to investigations by tax authorities in Austria, Germany and South Africa due to
its use of so-called “transfer pricing” to shift profits to lower tax jurisdictions. There have been no announcements so far today, with the only Retail news the ABF pre-close update flagging that Primark LFL sales were level in the first half to end February.

Planet ONS Watch:
City economists were wrong-footed yet again on Friday morning, discovering that High Street life last month on that strange parallel world, the Planet ONS, was actually just as strong as it was in the real world, as reported by the recent BRC-KPMG survey. The ONS Retail Sales figures for January (the 4 weeks to Jan 30th) flagged that overall year-on-year seasonally adjusted sales volume growth was 5.0% (ex-petrol) and +2.3% month-on-month, well ahead of the +3.3% and +0.8% forecasts of the consensus. Of course, sensible people only look at the non-seasonally adjusted sales value figures, and the news here was less exciting, with overall sales up by 2.5% (Predominantly Food retailers up 0.9%, Predominantly Non-Food retailers up 2.9% and Non-Store retailers up by 8.7%). Interestingly, the ONS did not revise its surprisingly weak December figures up, in fact the overall sales
value outcome was revised down a bit, from -0.3% to -0.7%, after Food sales were knocked back by late reported figures.

Grocer Watch: The widely followed Grocer “33” weekly supermarket pricing survey in Saturday’s magazine saw guest retailer Aldi win easily, but with less of a gap than its advertising claims: the Aldi basket of just £41.17 was 14% cheaper than 2nd placed Morrisons and 32% (or nearly £20) cheaper than Waitrose…Amazingly, the separate Grocer “Mystery Shopper” weekly survey on Store Service and Availability was also won by Aldi, as its newly refurbished 12,000 sq ft superstore in Lewisham topped the rankings, with a solid score of 77 out of 100 (including 10 out 10 for car parking). The Grocer also had a feature article on the debate about whether Aldi’s new ad campaign shows that it has been rattled by its rivals’ recent price-cutting or it is merely setting the record straight.

News Flow Next Week: Things are busy in the world of Retail Property this week, with Wednesday bringing the CapCo finals and Friday the Intu Properties finals. The Howden Joinery finals are on Thursday. And, as the end of the month is approaching amazingly quickly now, we get the silly CBI Distributive Trades survey for “February” on Wednesday and the well-respected monthly GFK Consumer Confidence Index on Friday. Nick Bubb – nicholas_bubb@hotmail.com

Friday 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:

The London Market (hotels, restaurants, pubs, bars etc.):

• See earlier comments for more detail on our view that London is perhaps past its best (for this cycle at least) and that it may be about to embark on a period of slower (or negative) growth

• M&C has reported figures this morning. It says ‘trading was weaker than last year in London and New York especially in the second half of the year.’

• It repeats ‘during Q4 2015, RevPAR in key cities such as New York, London and Singapore all fell as compared to the previous quarter.’

• M&C says specifically ‘London RevPAR for 2015 fell by 3.4%. Excluding The Chelsea Harbour Hotel which was acquired in March 2014, London RevPAR fell 3.5%.’

• It says that a part of this decline was ‘due to the refurbishment of guestrooms which started at the end of 2014 and was completed in the fourth quarter of 2015.’ But it does say ‘in Q4 2015, London’s RevPAR fell by 5.0%.’

• But does slow trading result from refurbishment closures or are the latter prompted by the former?

• M&C says ‘the Group will commence refurbishment of two of its key London hotels in 2016…it is anticipated that both projects will require removal of rooms from inventory in stages but the hotels will not need to be fully closed during the refurbishment period. ‘

• Overall, we believe that the London hotel cycle has passed its peak. It would not be surprising in the near future to see rates cut in order to bolster already-falling occupancy levels

• New capacity being put on by Travelodge, Premier Inn & Hub (both Whitbread), Tune, the Accor brands and EasyHotel will all do nothing to support rates.

Disruptive companies:

• So is Uber really losing $1bn a year in China?

• And if it is, how long can that go on?

• Perhaps, with hindsight, in China Uber may have bitten off more than it can chew.

• But the path to riches for these Unicorn stocks – start-up, $1bn valuation, IPO, mega-billion capitalisation (but still losses or de-Minimis profits) – is well trod.

• And while there are billions to be made by getting these gambles right, there will doubtless be people willing to spin the wheel.

• It’s OPM, perhaps (other people’s money) but it is what it is.

• All of which suggests that it may not be just the existing market that gets disrupted, it could be the wealth of those backing the new entrant

Turkey:

• TUI and Thomas Cook have commented that bookings to Turkey are down by as much as 40%

• The operators are able (at some modest cost but at great effort) to move capacity to the Western Med and the Canaries.

• Terrorist incidents such as the explosion in Ankara yesterday will do little to prompt a new wave of bookings to Turkey’s resorts.

Random information, hopefully not all of it useless:

• Press comment that Morrison’s may be bid for. Could happen. The idea of allowing 4 to go to 3 is more appealing (or at least less unappealing) to the competition authorities when there are new entrants and ‘smaller’ operators such as Aldi, Lidl, M&S Food and Waitrose all taking share.

• Shaping up to be a rather soggy end to an otherwise buoyant week. UK markets down yesterday when some others were up. Could go either way today but overall the week has been one of substantial recovery.

• Risk off kinda day yesterday with OIGs, MINs and FINs (oil & gas, miners & financials) on the way down & boring stocks on the way up. House builders relatively strong on broker comment.

• Sterling stable. Brexit fears not impacting just at the moment.

• Oil off a shade. Down a buck and a half from its recent bounce to $35.50.

• Again it pays to look at a slightly longer chart. This suggests that oil price is just bumping around the bottom. Could go either way. That’s stating the blooming obvious but it gives plenty of ammunition to both the bulls and the bears.

• Gold price off the top but still threatening to break through the (what-we-are-told-is) important $1260 level.

• Soft commodities. Most weak. Feature of the day, sugar weak, pig prices strong.