Langton Capital – 2016-07-04 – Drink guidelines, new openings, staycations & other:
A Day in the Life:
It turns out that my phone’s battery hasn’t been lasting very long recently.
And, when I asked the battery-saving-app that I downloaded some time ago what was draining the power, it said that the battery-saving-app was responsible.
So that’s not as useful as it perhaps might be and, even though road-menders might commonly appear to dig the road up just in order to fill it in again, I think I might put an end to that particular energy drain as soon as I get around to it.
Anyway, the dog-days are nearly here. It seems quiet out there and, whilst the B-word might have something to do with that, it could just be the time of year. On to the news.
RECENT WEBSITE ARTICLES:
• Small vs large ticket items – here
• Recent notes – here
• Ongoing tweets, older emails found – here
PUB, RESTAURANT & DRINKS PRODUCERS:
• Brexit comments at the bottom.
• Leisure trading & recessions. Small ticket sales hold up relatively well. That’s not brilliant, but it’s somewhat reassuring. Corporate balance sheets across the sector are much, much better (i.e. less stretched) than they were back in 2008. Expansionary capex plans may be reviewed. Ditto share buybacks though it is interesting to note that both JDW and Enterprise Inns have continued buying their shares back over recent days.
• MCA’s Pub Brand Monitor Q1 2016 hints at a worrying deterioration in consumers’ perception of value, service, and food and drink quality in pubs over the past year. The monitor also finds that, while consumer ratings for their overall experience at UK pubs was flat for the period, average spend per head rose slightly to £17.31 although this lagged an 8% rise seen across the wider eating out market.
• New drinking guidelines have been criticised for lacking credibility and being potentially misleading by MP Byron Davies at a parliamentary debate last week. ‘I am concerned that the process by which the Chief Medical Officer [Sally Davies] came to the guidelines [of no more than 14 units a week for both men and women] was flawed, and hijacked by a group of anti-alcohol campaigners with a total abstinence agenda,’ said Davies.
• Tasty Plc opened 12 Wildwood sites and saw a 28% rise in operating profit to £3.95m in the year to 27 December 2015. The group’s total estate now consists of seven DimTs and 43 Wildwoods and Wildwood Kitchens, and it expects to open another 15 units in the year ahead.
• Carluccio’s opened 10 UK sites in the year to 27 September as adjusted EBITDA rose 7.2% to £15.3m, although a £2m impairment means profit before tax fell from £7.7m to £5.2m. Revenue increased by 7.4% to £137.8m. The group opened its first US site near Washington DC during the period, and have a second lined up, while four sites were opened and one was closed by franchise partners in Dubai and Turkey.
• Bath Ales has been bought by St Austell Brewery for an undisclosed sum, strengthening the latter’s presence in the South West.
• A list of the fastest-growing restaurant chains in the US is notable for its lack of better burger brands and its inclusion of a variety of chicken outlets such as Chick-fil-A. US burger sector like for like sales have slowed down over the past year after growing by more than 14% in the five years to 2015 to nearly $103bn. Fast-food vendors including McDonald’s appear to be investing in their chicken-based menu options. Data per Business Insider.
• Celebrity chef Rick Stein has attributed the shelving of a seafront restaurant in East Sussex on the UK’s EU referendum.
• Leon has approached former Whitbread CEO Alan parker to help with its US expansion reports The Telegraph
• Heavy rain brought about by the El Niño current has reportedly wrecked the 2016 Chilean wine harvest, which has been branded one of the most ‘challenging vintages in recent times’. A record amount of precipitation fell in Casablanca, Rapel, Maipo, and Colchagua Valley between 14-17 April, reducing red grape yields by as much as 25%.
• Waitrose has reported a 17% drop in profit to £66.6m for the year to end January 2016 due to ‘exceptionally tough’ conditions and ‘continuing food price deflation’. Pension costs associated with the grocer’s parent firm John Lewis also hit profits.
LEISURE TRAVEL & HOTELS:
• Millennium & Copthorne has appointed Kok-Kee Chong, formerly of JP Morgan, as its new chief financial officer.
• Magnificent Real Estate has taken advantage of the weak Pound with its first acquisition in London — the £70m purchase of King’s Cross Travelodge — in anticipation of rising tourism to the UK.
• Turkey and Northern Cyprus specialist Anatolian Sky Holidays has ceased trading and the Civil Aviation Authority is now assisting 1,200 affected holidaymakers.
• Travel agencies have reported a jump in exchange sales in the wake of the EU referendum amid reports of panic buying, writes Travel Weekly. Thomas Cook and Hays Travel halted their click and collect services following the steep drop in the value of Sterling.
• TUI AG has announced that former CFO Will Waggott has stepped down as a member of the Executive Board
• Marriott International has received authorisation from Saudi Arabian and Mexican competition authorities to proceed with its acquisition of Starwood Hotels & Resorts. Pre-merger authorisation is still required in China.
• Questor at The Telegraph says Gym Group shares are a HOLD. Group updates on trading tomorrow.
FINANCE & MARKETS:
• The Markit/CIPS manufacturing PMI shows a pick-up in activity in June from May to 52.1, although future results may be impacted by Brexit-related uncertainty. Ron Dobson, senior economist at Markit, cautioned: ‘whether this growth recovery can be sustained will depend heavily on whether the current financial and political volatility spills over to the real economy.’ The latest PMI data was collected before the 23 June referendum.
• World markets: UK, Europe & US up on Friday. Far East higher in Monday trading.
• Oil price a shade higher at around $50.35 per barrel.
• George Osborne has told the FT that he will cut Corporation Tax further in order to make the UK attractive to international companies. The rate could go below 15% from its current 20%.
• Eurozone unemployment has dropped to 10.1% in May from 10.2% in April
LEISURE & ECOMOMIC NEWS – BREXIT SHOCK:
o Economist magazine title 2 July. Anarchy in the UK.
o Per Dutch PM Mark Rutte – ‘England has collapsed politically, monetarily, constitutionally and economically’.
o For the first time in 43yrs, the UK does not have an EU Commissioner.
o EC president Herman van Rompuy says decision to hold a referendum ‘was the worst policy decision in decades’.
o Pro-EU demonstrators took to the streets in London and York over the weekend.
o Acknowledging that Brexit campaigners may have had a point, German Economy Minister Sigmar Gabriel has called for the number of EU Commissioners to be cut and for Brussels to reconsider how it allocates its budget.
o Credit Suisse’s Tidjane Thiam has blamed the Brexit vote on inequality and a lack of education
o 18yr-olds are being blamed for not voting in sufficient numbers. Fair call but some of them can’t even make toast.
• Wider economy:
o George Osborne has abandoned plans to balance the UK government’s budget by 2020. Debt will now be higher than anticipated
o ICAEW says decision to leave EU ‘will dominate British national life for the next decade, if not longer.’ It says ‘a referendum reduces complexity to absurd simplicity’ and says ‘the British people were told there would be no economic price to pay for leaving, and no losses for all those sectors of its society that have benefited from Europe. Voters were promised an advantageous trade deal with Europe (Britain’s biggest market), lower immigration, and more money for the National Health Service and other cherished public goods and services. Above all, Britain, it was said, would regain its “mojo,” the creative vitality needed to take the world by storm.’
o YouGov/CEBR consumer confidence survey suggests ‘4dys of uncertainty have wiped out the gains made over the last 3yrs’. The survey says ‘recession certainly cannot be ruled out at this point’.
• UK corporates:
o Institute of Chartered Accountants reports some businesses (it names VOD & Goldman Sachs) are considering moving some operations out of the UK post Brexit vote. VOD says it will only retain its HQ in the UK if it has access to the single market. At present, this brings with it the obligation to maintain open borders.
o Easyjet has denied that it is currently planning to move its HQ from the UK to continental Europe.
o The Independent says Paris, Frankfurt, Amsterdam & Dublin are vying to become ‘the new London’ post Brexit.
o Housebuilders are said to be lobbying (what they can find of) government for measures to boost the housing market
o Fidelity has said that it is to shift 100 jobs from London to Dublin. It denies that this is linked to the Brexit vote
o Property Week says ‘the UK’s decision to leave the EU could put the debt markets back 5yrs as appetite for risk dries up, margins rise and leverage levels fall.’ That may be no bad thing but, in the short term, it should lead to lower property values.
• Small ticket leisure:
o Should hold up reasonably well in recession says food service columnist Joe Cripps. Staycations – in the light of higher overseas holiday costs – could help the sector.
o Some observers suggesting the UK could now cut VAT on hospitality services. This was already possible within the EU. France, amongst many other countries, charges a lower rate of VAT on hospitality services. Comments attributed to John Whittingdale, secretary of state for culture, media and sport, speaking to the British Hospitality Association.
BREXIT & RECESSION. LANGTON VIEW:
• It may be the weather, it may be Euro 2016 or it may be the proximity of the summer holidays.
• It may be Brexit exhaustion, it may not last, it may be a blip but it appears to be quiet out there.
• Visits over the weekend to Morrison’s, Sainsbury, WH Smiths, Costa, Waterstones, Next and TK Maxx – as well as the sad, lonely and almost out-of-stock BHS suggested to Langton at least that there’s a sense of anticipation in the air, people are waiting, they’re not spending.
• Of course the hen and bachelor parties that infest York of a weekend still seemed to have found some booze somewhere but we await the first July stats (due out towards the end of the month) with interest.
YESTERDAY IN A NUTSHELL – SEE LIVE TWEETS ON WEBSITE:
• Some of our morning tweets: PMA says majority in pub trade wanted Brexit but also reports many operators contacted now think it will negatively impact trade
• Singaporean bank UOB has said that it will not lend to its nationals or others against London property in the face of uncertainty re values
• Merlin boss Nick Varney has pointed out that a cheaper pound means people can’t afford foreign holidays & may visit UK resorts.
• Bank Governor Carney says Bank may need stimulate economy over the summer. This doesn’t come without cost.
• Economist Intelligence Unit now forecasting end-16 & 2017 recession and slower growth thereafter
• EIU sees GDP 6% below where it would have been by 2020. Expects borrowings to rise, tax revenues to fall
• Outbound Chinese international travellers may outspend those from Germany, UK & France combined by 2025. TCG well positioned
• US hotel industry reported REVPAR up 4.4% in the week to 25 June per STR. Occupancy was some 0.1% lower
• Other Tweets: FTSE100 at 10mth highs but sharp divergence between FTSE100 (US$ earners) & FTSE250 (largely domestic). Latter still down
• Grain prices very low (in US$ terms at least). Down 15% over the year but most of that in the last month.
• Sterling flirting again with 31yr lows on anticipation of rate cuts. Can’t cut far from 0.5%. Pound is well below ERM-exit lows
• Suggestion we wouldn’t trigger Article 50 till 2017. Good in some regards but does extend the uncertainty.
• Gilt yields below 0.9%. No joke. Not really a sign of a healthy economy. Also very risk-averse attitude across money managers
RETAIL NEWS WITH NICK BUBB:
• Saturday Press: The embarrassing “U-turn” on Friday from the beleaguered Chancellor didn’t get as much coverage in the Saturday papers as it probably should have done, because of the continuing turmoil in the Tory party, but the front page story in the FT was headlined “Osborne axes 2020 target for fiscal surplus”. The FT also had an interesting article about the plans of the new Mayor of London for a “makeover of Oxford Street”, involving less buses and more pedestrianisation. The FT also flagged that BHS is looking at a fresh start Overseas after the Qatari rescue deal, but the big Retail story was the news that Mike Ashley of Sports Direct is planning to install himself as the Chairman of the Findel home shopping group, after winning backing from 2 big shareholders: as noted by the FT, the Telegraph, the Guardian and the Times. The
• Sunday Press: The Sunday papers were again full of the political turmoil in both the Tory and the Labour parties, but there were plenty of Retail stories as well: ahead of the Sports Direct results on Thursday, the Sunday Telegraph noted that Mike Ashley blamed falling profits on “the media frenzy”, whilst the Observer mocked his recent appearance before MPs as being like the civil servant Humphrey Appleby in the cult political comedy “Yes Minister”. The Sunday Telegraph also flagged that Marks & Spencer will have gloomy news about Q1 Clothing sales when it reports on Thursday, with the City looking for a LFL decline of at least 4%, and that the struggling Staples UK office supplies chain is likely to be sold or closed by its embattled American parent. The Sunday Telegraph overview of the impact of “Brexit” on industry highlighted that Fashion
• Today’s Press and News: The big story today is that the embattled George Osborne is planning to cut corporation tax to less than 15% (in an effort to encourage businesses to still invest in the UK following the EU Referendum vote) and this is the front page lead in the FT. The Telegraph highlights that the shopping centre landlord Hammerson has signed seven leases totalling over 32,400 sq ft in the past 10 days, putting to one side the concerns over Brexit: new tenants include Italian make-up brand Kiko Milano and Jack Wills (which will both open new shops at its Silverburn centre near Glasgow). The Telegraph also flags that an upbeat trading update is expected from Topps Tiles on Wednesday. On a less happy note, we’ve seen it reported on Twitter that a huge fire has ripped through Morrison’s distribution depot in Wakefield.
• Grocer Watch: The widely followed Grocer “33” weekly supermarket pricing survey in Saturday’s magazine saw Tesco chalk up its 2nd win in the last 3 weeks, with its £59.20 basket beating Asda by 17p, forcing Asda to cough up a £5.90 voucher under its Price Guarantee Scheme. Morrisons was a remote 4th, with a £65.72 basket, 9p more than Sainsbury, with Waitrose coming in a distant 5th, with a £70.96 basket…There was better news for Sainsbury in the separate Grocer “Mystery Shopper” weekly survey on Store Service and Availability, as its 61,000 sq ft superstore at Rayleigh Weir in Benfleet, easily topped the rankings, with a score of 80 out of 100, just pipping the Waitrose store at Nailsea.
• Director Buying Watch: We noted with interest that the FT article on Saturday highlighting the amount of Director share buying post-Brexit, included Ian Cheshire, the respected Chairman of Debenhams. Alas, the truth is that, unwittingly, he bought pre-Brexit, on Wed June 23rd (the day of the disappointing Debenhams trading update), picking up 50,000 shares at 69.5p (well above Friday’s close of c56p…).
• News Flow This Week: As the sector tries to reassess the outlook for the second half of the year after the EU Referendum vote, Topps Tiles’ Q3 update and Booker’s AGM update on Wednesday will get more attention than usual, but the big company news day is Thursday, in the form of the Marks & Spencer Q1 trading update, the Sports Direct finals, the ABF (Primark) trading update and the Dunelm Q4 sales update…In politics, Wednesday will be the big day, as the publication of the long-awaited Chilcot Inquiry into the Iraq War will get plenty of coverage, whilst the selection of the Top 2 in the Tory Party leadership contest should become clear. For some light relief, Wednesday also brings the Sainsbury AGM and, in the evening, the semi-final between Wales and Portugal in Euro 2016.