Langton Capital – 2016-03-18 – Restaurant Group, e-Cigs, sugar, confidence & other:
A Day in the Life:
Technology is great, isn’t it?
It makes our lives easier – or at least more tolerable – in a number of ways but I do sometimes think that it can go too far, I mean take car keys, the ones where there isn’t an ignition slot anymore, you just have to be sitting in the car & press a button to start the thing.
What happens with such keys, for example, if two of you are out doing errands after which one person, the one with the keys in his/her pocket, drops the other off at home before driving to Cornwall or Fort William for the day – keyless?
All will be well until said person stops the vehicle for a pee outside Bristol or alternatively on the M6 after which all will not go well as the vehicle won’t start and you’re kinda deposited up poo-creek sans paddle – and what happens if the battery in the key-fob simply runs out?
I mean sure, the vehicle will bleat at you for a week or two and flash an amber warning light but nowadays vehicle dashboards are so complicated that one warning light or another is often flashing and it’s hard to get around to changing fiddly things like batteries in any case, isn’t it?
Anyway, the end result will be the same as you’ll be left standing next to a locked vehicle with the alarm going off and that’s not a good look at the best of times. On to the news:
Pub, Restaurant & Drinks Producer News:
• Restaurant Group appoints Mike Tye, ex-CEO of Spirit Pub Co, as NED and Chairman of the Remuneration Committee. Mike will join the Board on 4 April 2016. RTN says ‘Mike has extensive experience of the Leisure and Hospitality sector and was until recently the CEO of Spirit Pub Company plc, where he led its successful establishment as a public company following the demerger from Punch Taverns. He was a Director of Punch Taverns until August 2011. Prior to that he held a variety of MD roles in Whitbread, including MD of David Lloyd Leisure, Premier Inn and Costa Coffee.’ RTN goes on to say ‘in line with best practice, Tony Hughes, Senior Independent Director and Chairman of the Remuneration Committee since 2008, will be retiring from the Board following the Company’s AGM on 12 May 2016.’
• Premium bottled ale. Discounting abating, latest report shows decrease of 21% in the total number of lines on promotion.
• PBR shows big reduction in number of beers on offer at Waitrose (-36%) and Sainsbury’s (-67%)
• China Resources Beer, which recently bought out SAB’s joint venture stake in the company, has announced a 14% rise in profit despite a soft market. The group completed its disposal of its non-beer businesses to its parent company, China Resources Holdings, for HK$30m and ‘deepened its penetration into various regions, optimised its product mix, enhanced its cost efficiency by leveraging its economies of scale and a better management over selling expenses’ despite slower national growth and ‘abnormal weather conditions in China’.
• The Office for Budget Responsibility says that UK households are on course to spend more than they earned for the rest of the decade. Such a long period of households living beyond their means would be ‘unprecedented’ according to the fiscal watchdog. Some £58bn more than is earned is forecast to be spent this year, with the difference set to widen to £68bn by the end of the decade.
• The Welsh Assembly has voted against a ban on e-cigarettes in public places.
• Imbiba-backed Darwin & Wallace has confirmed it will open a site as part of Battersea Power Station’s Phase One development, called No29. The bar chain is busy preparing for the opening of its fourth site in Chiswick next month. Darwin & Wallace opened its first site, No 11 Pimlico Road in Belgravia in 2012, which was joined by No 32 The Old Town in Clapham in 2014, and No 1 Duke Street in Richmond last year.
• Managing director Mel Marriott commented on the Battersea site: ‘We are all incredibly excited to be a part of Battersea Power Station’s regeneration development and the growing community within it. Together with our team of artisans and carefully selected suppliers, we are looking forward to seeing our vision of a modern twenty first century pub, complete with unique design, food and drink paired with the spirit of Battersea come to life in No29.’
• Surrey-based Hogs Back Brewery is celebrating the Budget duty freeze on beer and cider with a wholesale price freeze across its full range for the rest of the year. Hogs Back MD Rupert Thompson warned, however, that ‘the way duty works for small brewers means that our own duty rate will actually go up next year… Whilst it’s heart-warming to be able to contribute more to the common good by paying more duty, we are urging the Treasury to address this particular problem in the near future.’
• M&C Allegra’s latest tenant track survey points to improving tenant satisfaction in the industry.
• Wages and living standards are set to fall in the wake of the latest Budget, according to the Institute for Fiscal Studies which warns that ‘we should all be worried’. The think tank added: ‘This will lead to lower wages and living standards, not just lower tax revenues for the Treasury.’
• Kate Andrews of the Institute for Economic Affairs has called sugar taxes ‘incredibly regressive’ and says the initiative will hit the poorest the hardest.
• Some Tory MPs have criticised the sugar tax as nannying, impractical, and an unwarranted interference in people’s lives.
• Tim Wilson of WDR has given his thoughts on the latest Budget, which includes duty freezes on beer, spirits, and cider, commenting: ‘As we predicted, Chancellor Osborne has reintroduced an inflationary increase on wine duties. Even though the English wine industry is growing strongly, wine is primarily an import business unlike beer, cider and spirits which are mostly produced in this country.’
• ‘The total amount of duty collected on wine continues to grow year on year, despite a drop in the volumes of still wine sold in the UK, and total wine duties are forecast to rise by a further £1.3 billion over the next 5 years.’
• HM Treasury estimates that these duty changes will reduce total duty collected in 2016-17 by £85m.
• M&B shares have underperformed those of Marston’s by 65% in the las 6mths or so.
• March 2016 Markit World Business Survey reports ‘optimism regarding future activity hits survey-record low’
• Markit. Says ‘US confidence drops markedly’ and adds ‘Eurozone and BRIC area see slight improvements in sentiment’
• Markit says ‘global employment outlook slips to new low’ & says ‘weaker profits growth set to weigh on investment’. Report says ‘the latest Markit Business Outlook Survey has signalled a further moderation in sentiment among UK private sector companies at the start of 2016.’ It says ‘though still positive overall, the outlook is the weakest since late-2012 amid widespread uncertainty surrounding the domestic and global economies. A net balance of +43% of firms across the UK manufacturing, construction and service sectors expect activity levels to rise over the next 12 months.’
• Markit says ‘manufacturing outlook is also the least optimistic since late-2012, reflecting concerns over a slowing global economy. UK firms highlight a range of threats to growth over the next 12 months. The three most commonly cited risks are a slowing economy (mentioned by 41% of respondents), competition or falling prices (18%) and regulation or government policy (15%). European issues – including uncertainty over ‘Brexit’ following the June referendum on EU membership – is the fourth-most popular concern among survey respondents, mentioned by 12% of companies.’
• Markit says ‘competitive pressures are expected to limit firms’ ability to hike their own prices over the next 12 months.’
• A total of 23.6 million tourists visited the UK in 2015, up 7.1% YoY, with much of the growth driven by visitors from EU countries (up 13% to 14.9 million). By comparison, arrivals from other countries outside the EU fell by 1.8% to 8.6 million.
• The US hotel industry saw mixed figures for the week of 6-12 March according to STR data, with YoY occupancy down 1.5% to 66.9%. Average daily rate rose 2.6% to $123.28 and revenue per available room increased by 1.1% to $82.51.
Finance & Markets:
• UK interest rates have been held at 0.5% by the Bank of England as all nine members of the Monetary Policy Committee voted to keep rates at their record low. The move to freeze rates comes at a time of growing concern over global growth and uncertainty over the upcoming Brexit referendum on 23 June.
• World markets: UK up yesterday but European bourses lower. US markets up and Far East mostly higher in Friday trade
• Oil price off the top but hit 2016 highs overnight. Now trading at around $41.50 per barrel
• Seasonally adjusted trade surplus in Euro-zone fell to €21.20bn in Jan.
Retail Roundup from Nick Bubb:
Home Retail: In the City, all the M&A bankers are on edge, waiting for the stand-off in the Sainsbury battle with Steinhoff for Home Retail (aka Argos) to be resolved, ahead of the formal Takeover Panel “PUSU” bid deadline for Home Retail at 5pm this afternoon…
TIPS Watch: Meanwhile, the great 4-day Cheltenham Festival concludes this afternoon, with the highlight being the Gold Cup at 3.30 (although most of tomorrow’s headlines are likely to be about Victoria Pendleton’s ride on Pacha Du Polder in the following race, the Foxhunter Chase at 4.10…). We hope Cue Card wins the Gold Cup but that is perhaps a race just to watch and savour, with any number of decent Irish horses likely to run well, not least Don Poli. “Honest Nick’s” “Three to Follow” tips today are: Sceau Royal (e/w) at 1.30, John Constable (e/w) in the 2.10 and Squouateur (e/w) in the 4.50.
Retail Oscars Watch: The “Retail Week Awards” (aka the Retail Oscars) took place last night and, although it was not exactly a bang-up-to-date assessment of industry performance, the awards were well contested, with “Multi-Channel Retailer of the Year” seeing Screwfix beat off Argos, House of Fraser, John Lewis, New Look and Sainsbury’s, for example. The prestigious “Retail Leader of the Year” award went to the Co-op Group CEO Richard Pennycook, whilst Waitrose MD Mark Price won the “Outstanding Contribution to Retail” award. And, as we expected, the “Retailer of the Year” awards went to…Dixons Carphone.
News Flow Next Week: The pace of company news accelerates next week, ahead of Easter, with Wednesday bringing the Kingfisher finals, the Game Digital finals and the DFS interims (as well as the vital BHS CVA vote), whilst on Thursday we get the Next finals, the ONS Retail Sales for February and the Signet Q4 update. Nick Bubb – firstname.lastname@example.org
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:
CURRENT TRADING, OVERCAPACITY ETC.:
• Tracker: Valentine’s fell on a Sunday. Sunday’s tend to be more of a lunchtime market (work on Monday, etc.). Valentine’s Day also coincided with a number of big football & rugby fixtures.
• Tracker: The weather, not mentioned, wasn’t a big deal either way.
• Both WTB & RTN seem to have flagged up that LfL sales increases are (and will be) harder to come by
• This morning’s Tracker (see earlier email) seems to be saying the same thing
• LfL sales in Feb (per the Tracker) were 0.0% with total sales growth of 3.2%
• That at least makes the maths easy in that 3.2% of new capacity (at least in terms of sales value) must have gone on in the last year
• And that compares with GDP growth of around 2%
• Certainly there may be a secular move towards eating (if not drinking) out
• In addition, the majors may be taking share from independents
• But new entrants, Franco Manca, for example, will also be taking share from the branded incumbents
WHAT THIS MEANS:
• There are clearly a lot of moving parts.
• But one take-away from the above could be that a) we have nearly enough restaurants now open to keep us going and that b) growth will come therefore from taking market share rather than necessarily from growing the market
• Investing legend Peter Lynch (Magellan Fund, Fidelity, took it in AUM terms from around $50m to c$10bn) said in the 80s and 90s that, if you spotted a good restaurant concept in Florida or Washington State, there were good reasons to suppose that it could grow at 20% plus per annum for 20+ years whilst it rolled out across the US
• And longer if it cracked the overseas market
• But, and it’s a big but, the UK is a lot smaller than the US
• Perhaps 10 is the new 20?
• Interest-deductibility of debt interest. It looks as though this will not impact property-owning pub companies. And nor should it, rent is allowable and so too should interest costs (in this context at least).
• The restriction on the use of some losses brought forward could have an impact. This is not commonly factored into share prices in the first place, however.
COMMODITY & INPUT PRICES:
• Oil price bounce yesterday. Now trading above $41 again ($41.25 at time of writing) after dipping to little over $38 on Tuesday
• Gold price also firmer at around $1,265 per ounce – but rise less in percentage terms than that in oil. Gold Oil ratio now at a month low of 30.7.
• Red meat prices weak. Some commodities moving up a bit on the back of a weak US$ but feeder cattle prices down some 26% over the last 12mths.
RANDOM INFORMATION, HOPEFULLY NOT ALL OF IT USELESS:
• RTN shares bouncing today for the first day in a while. Shares now around 396p. Bounce of 3% on the day at time of writing but shares down by 40% plus over the last three months or so. See comments on capacity above but, even with that in mind, it would not be too surprising to see PE bid stories emerge at some point.
• Travel stocks weak yesterday on big-broker-downgrade yesterday. Demand down? Perhaps but, with Tunisia and Egypt shut and Turkey running 40% down, the areas to which holidaymakers are attracted will be selling out and margins could be good.
• Circa 80% of total FTSE100 stock revenues come from outside the UK.
• Sugar tax, will it make a difference. Well, perhaps not much. But that may not excuse doing nothing. Strange that it doesn’t extend to chocolate, cakes etc. Also stealth products such as tomato sauce, baked beans etc.
• Bookies up yesterday on the absence of (further) bad news in the Budget.