Langton Capital – 2016-06-28 – Brexit, Sterling, holiday & commodity costs & other:
A Day in the Life:
Well writing this at 10.15pm and stone cold sober, I think I can fairly say that I can’t remember having ever enjoyed watching a game of football less than I did the match just ended.
In fact, the only thing to be said for our ignominious 1-2 defeat by Iceland is that it’s somehow appropriate given the wider mood of despondency that’s settled over bits at least of the country since the EU referendum (a.k.a. protest vote gone wrong) last week.
But it – the football that is – is over now and, if it weren’t for the referendum uncertainty, we’d be seeing a surge in holiday bookings from tomorrow accompanied by more visits to the DIY sheds, to restaurants and to cinemas.
However, that may not happen as we’re in unknown territory for the foreseeable future. Somebody may have a plan but it’s not clear who that somebody is and nor is it clear what’s likely to happen before we either do or do not trigger Article 50.
The outlook for interest rates, Sterling, commodity prices, stock levels, employment trends, house prices and the rest are all uncertain and, with Horizons pointing to 5yrs of disruption, one has to hope that something more tangible can be forthcoming this side of Christmas.
But let’s be balanced about it. Scotland may leave us, Nissan may move 50 miles down the road to the other side of the Tweed and jobs may be lost from the City to Edinburgh – but at least the provinces gave London a kick in the nuts and that’s what matters, innit? On to the news:
RECENT WEBSITE ARTICLES:
• Recent notes – here
• Ongoing tweets, older emails found – here
PUB, RESTAURANT & DRINKS PRODUCER – BREXIT SHOCK:
• Scotch Whisky Association says its industry faces an uphill struggle as the single markets is ‘central to the success of Scotch’. Scotland is at present making moves to be allowed to remain in the EU.
• Food & Drink Federation boss Ian Wright has said that Brexit is a ‘disaster’ for the UK food & drink industry.
• Food retailers have generally remained silent on the issue. They did not campaign to remain in the EU though there is now talk of higher food & drink prices.
• Asda & M&S came out in favour of ‘remain’ whilst other retailers remained silent for fear of ostracising customers
• JDW’s Tim Martin has said that democracy was at risk in the EU & concludes that we will prosper outside it. He says ‘examples of the economic success of democracy abound from New Zealand and Australia to Canada, Singapore and Norway.’ That’s true but where’s China on that list.
• JDW’s Tim Martin says we must ‘avoid being hectored or rushed.’
PUB, RESTAURANT & DRINKS PRODUCER – OTHER NEWS:
• Marston’s is hosting a visit to its Burton brewery operations today. It says no new material information will be made available
• The ALMR has moved to reassure members that the trade body will work closely with the government and continue to lobby for their interests. Chief executive Kate Nicholls commented: ‘We want to be on the front lines ensuring that confidence and investment is not unduly undermined by any future instability, and that the sector knows where it stands… The Government needs to establish a clear and concise roadmap to provide reassurances for businesses and employees and the ALMR stands ready to assist.’
• iNTERTAIN has opened a Chicago Rib Shack at its Camden Lock venue after entering into a license agreement with the American barbeque chain.
LEISURE TRAVEL & HOTELS:
• Travel companies could be facing a decline in holiday bookings as a result of the referendum and consequent sterling weakness. TUI has fallen 8% over the past few days, while Thomas Cook has dropped by 14%.
• UK air travel could drop by as much as 5% by 2020 as a result of the UK’s vote to leave the EU according to a forecast by Iata. IAG and EasyJet have both issued profit warnings in recent days as airlines face falling passenger numbers changes to regulation.
• The executive director of the Global Business Travel Association (GBTA) says it is ‘impossible’ to assess the impact of the Brexit vote so soon after the event.
• EasyJet has attributed a profit warning to an ‘extremely challenging’ operating environment in May and June, which could see Q3 profit before tax down as much as £28m. The budget airline has also had to cancel 1,061 flights due to air traffic controller strikes in France and tough weather conditions.
• EasyJet said in a statement: ‘Following the outcome of the EU referendum, we also anticipate that additional economic and consumer uncertainty is likely this summer and as a consequence it is expected that revenue per seat at constant currency in the second half will now be down by at least a mid-single digit percentage compared to the second half of 2015.’
• ‘In addition, recent movements in fuel prices and exchange rates are now expected to add around £25 million of additional cost in the year to that guided at the half year results. In response, easyJet is continuing its efforts to drive ex-fuel cost savings.’
FINANCE & MARKETS – BREXIT SHOCK:
• Farmers have called for guarantees that they will retain the same subsidies from the UK government that they currently get from Brussels.
• Cornwall ditto.
• Sterling yesterday fell to a 31yr low vs US$. This has implications for commodity prices
• Benchmark 10yr gilt yields fell below 1% as the ‘flight to quality’ led to funds switching out of corporate paper
• Janet Yellen has pulled out of a meeting of central bankers in Portugal. Mark Carney cancelled his attendance over the weekend
• Property agent Foxtons has announced that the ‘upturn [in London property transactions] we were expecting during the second half of this year is now unlikely to materialise.’ It says ‘we therefore expect full year 2016 Group revenues and Adjusted EBITDA to be significantly lower than prior year.’
• George Osborne has said that the UK, despite voting for Brexit, can face the future “from a position of strength”. There will be no immediate emergency Budget. The Chancellor said it was “perfectly sensible to wait for a new prime minister”
• The UK has lost its AAA credit rating according to ratings agency S&P following last Thursday’s Brexit vote
• Hate crimes are said to have ‘surged’. Racist abuse of foreigners is said to be on the rise.
• Germany is to roll out the welcome mat to British techies. Emigration may become a thing. Berlin senator for Economics and Technology Cordelia Yzer said ‘those companies who have headquarters in London are aware that they need to be in the EU.’ She continued ‘we had competition in the last two or three years between London and Berlin. I am convinced that more funds will now make the decision in favour of Berlin.’
• Mario Draghi has said that he is ‘sad’ that Britain has voted to leave the EU.
FINANCE & MARKETS – OTHER NEWS:
• World markets: UK sharply down & Europe lower yesterday. US markets down and Far East down in Tuesday trading.
• Oil price a little lower over the last 24hrs but rising as we write. Trading at around $47.80 per barrel
YESTERDAY IN A NUTSHELL – SEE LIVE TWEETS ON WEBSITE:
• Some of our morning tweets: Brexit reaction. Business & markets horrified. Perhaps didn’t make their views known early enough?
• JD Wetherspoon founder Tim Martin has said that the UK is ‘in an immensely strong position’. Weak pound should drag in visitors.
• Operators Punch Taverns & Marston’s have stressed that, for the moment, it is business as usual. Young & Co stresses uncertainties
• Petrol prices may rise by c5p by the end of the week. Commodity prices in Sterling are already c8% higher. Could hit margins
• TUI CFO Horst Beier has told the German Press that a Brexit would hurt its profits.
• Sterling touches 30yr lows versus US dollar. Moody’s cuts UK credit rating, Provinces kick London in the nuts.
• Sajid Javid suggested c0.5m jobs in total may be lost. £15bn of IPOs said to be ‘in peril’. London house prices wobble, buyers pull out
• Bank of England promises to do what it takes. So it’s all alright, then. Mr Osborne will speak pre-market opening.
• Hiring freeze likely in wake of Brexit vote reports Institute of Directors. Sterling down a further 3% in early Monday trading.
• Other Tweets: FTSE100 cuts back on losses then lurches down again. FTSE250 (largely domestic stocks) performing worse than US$ earning 100 index
• Gold / oil (number of barrels per ounce) reflecting risk-off stance. Up to c28 barrels from 24 on 8 June and 25.3 on Thursday
• UK builders & banks take monster hit for 2nd day running as market makes its views on house prices & lending crystal clear
• Timing of Article 50 call still unclear. Won’t be sooner, could be later, might be never as Johnson says poll ‘not entirely overwhelming’
• Markets still above Feb lows but mid-caps & domestics incl. banks look vulnerable. RBS & BARC suspended limit-down at one point
• Sterling in the toilet as billions more in capital goes bye-bye – http://www.livecharts.co.uk/ForexCharts/gbpusd.php
• Is it my poor memory or did Mr Farage say that, if he had lost 52:48, a Brexit would be ‘unfinished business’?
RETAIL NEWS WITH NICK BUBB:
• Ocado: Today’s interims contain the usual detail on operational performance in Online Grocery from Ocado and reasonably good reading it makes too, but EBITDA grew by only 6% to £40m in the 24 weeks to mid-May, and there is still no firm news on the much-vaunted Overseas licencing deal…”We continue to be in multiple discussions with international grocery retailers to use Ocado Smart Platform…and remain confident in our ability to sign multiple deals in the medium term.”. The analysts at the results meeting at 9.30am will doubtless want to know why it is taking so long to get an Overseas deal signed, as well as the state of the relationship with Morrisons and the outlook for the new Healthy and Beauty site (which is about to be launched at last).
• Carpetright: Today’s finals for y/e April show a solid recovery in underlying PBT to £17.3m, along with the announcement of “a range of strategic initiatives to update and broaden the appeal of the Carpetright brand”, but the City will be more interested in the comment that “Trading conditions in the early weeks of the new financial year have been more challenging, against strong comparatives in the prior year and in a market which is increasingly competitive, particularly in the UK. The outlook has been further complicated by the outcome of last week’s EU Referendum and we are cautious about the impact the associated uncertainty will have on consumer confidence”. The fact that May was weak and June has been strong may be weather-related, but the last 8 weeks combined have been down 1% LFL in the UK, so it will be interesting to see what sort of
• Share Buyback Watch: It was again interesting to see which companies took advantage of the further share price slump in the Retail sector yesterday to buy back some cheap stock…Next bought c110,000 shares at an average price of c4542p and WH Smith bought c34,000 shares at c1477p, whilst Pendragon and DFS carried on with their modest buyback programmes, but, if truth be told, they were all swamped by the sheer weight of panic selling, post-Brexit…