Langton Capital – 2016-08-01 – SAB Miller, consumer & business confidence & other:
A Day in the Life:
Langton, currently ensconced in the US, spent the weekend moving in bite-sized chunks from Flagstaff (AZ) to Santa Fe (NM) and, given the clement weather, the stunning scenery and the plethora of craft breweries (we’re considering whether this should be re-classified as a business trip), we have to conclude that this is a blessed part of the world.
Anyway, we’ll be in Albuquerque later in the week & can do a bit of a Breaking Bad tour. More research. Hence a shortened email – with perhaps some delay – will be going out for a little while. On to the news:
PUB, RESTAURANT & DRINKS PRODUCERS:
• SAB Miller has recommended AB InBev’s revised & final offer to buy the company. The Revised Offer comprises an all-cash offer of GBP 45.00 per share and a partial share alternative available for approximately 41% of the SABMiller shares. SAB says ‘the SABMiller Board intends to recommend unanimously the Cash Consideration and that SABMiller Shareholders vote in favour of the UK Scheme at the UK Scheme Court Meeting and in favour of the SABMiller Resolutions to be proposed at the SABMiller General Meeting.’
• SAB chairman says ‘the Board’s decision was difficult given changes in circumstances since the Board originally recommended £44 per share in cash last November. At that time we were satisfied that the 50% premium to the undisturbed share price appropriately reflected the quality of the business and its long term prospects.’ He adds ‘since then, various factors have affected the value of the offer, most importantly the impact of the Brexit vote on the value of Sterling and the re-rating of comparable companies. This has made the Board’s decision more challenging, and we believe the final cash consideration of £45 per share to be at the lower end of the range of values considered recommendable.’
• GfK has reported that British consumer morale suffered its sharpest drop in more than 26 years last month in the wake of the 23 June Brexit vote.
• AB InBev has reported Q2 & H1 numbers. Revenue grew by 4.0% in the quarter, with strong revenue per hl growth of 5.9%.
• AB InBev: Q2 volumes fell by 1.7%. The group says ‘combined revenues of our three global brands, Corona, Stella Artois and Budweiser, grew by 8.4% in 2Q16. This result was led by Corona with growth of 13.0%, driven primarily by Mexico, the UK, and China. Stella Artois revenues grew by over 9%, driven by the US and Canada. Budweiser revenues grew by almost 6% with growth coming primarily from China, Brazil and the UK. In HY16 the combined revenues of our global brands grew by 7.2%.’
• Diageo’s chief executive, Ivan Menezes, gave a confident full-year presentation last week after three busy years of soft demand trends and the tricky integration of India’s United Spirits.
• City Pub Company has secured an improved £20m banking facility to fund its expansion plans of taking its existing 27-strong estate to between 40 and 50 pubs over the next three years.
• The US has become the world’s biggest hop grower, knocking Germany from the top spot for the first time in half a century.
• The US health lobby is reportedly furious at the Treasury’s move to delay consultation over the implementation of a controversial sugar tax.
• Vacancy rates across UK retail parks, shopping centres, and town centres have fallen for the fifth quarter in a row, according to BCSC/LDC data.
• The BBPA has raised concerns regarding Camden Council’s intention to change its licensing policy in ways that would put new burdens on the borough’s pubs. The BBPA says that key aspects of the proposals would place new burdens on Camden’s pubs, where around 250 venues employ over 6,000 people, generating £700m for the local economy p.a.
• Mitchells & Butlers is developing a new format with the working title Chicken Social as part of the group’s stated aim of increasing innovation, writes MCA.
LEISURE TRAVEL & HOTELS:
• EasyHotel has completed the acquisition of the 125-year leasehold of 81-91 John Bright Street in Birmingham, which it expects to open by March 2017.
• The UK’s new minister of aviation means to review airport alcohol laws in a bid to address excessive pre-flight consumption. The BBPA’s Brigid Simmonds said of the early move: ‘Penalties for passengers who cause flight disruption are rightly severe, and we would certainly work with the Government if they do initiate any review. The industry works in partnership with the police and airport authorities and we would be happy to review these arrangements and extend them where necessary.’
• IAG took a €148m hit from the weak pound in the last quarter and also warned that it expected at least €80m in disruption costs in the second half of the year. This follows air traffic control strikes and ‘significant’ weather disruption which resulted in more than 1,000 cancellations.
• 32Red has updated on H1 trading saying that ‘the Company has delivered another record net gaming revenue performance in the first half of the year, up 63% to £30.4m (2015: £18.6m).’ It says ‘this excellent performance was driven by a combination of strong organic growth in our core business (+32% on 2015), reflecting our highly effective and growing marketing investment, and an increasing contribution from the Roxy Palace business, acquired on 14 July 2015.’ Re current trading, the group says ‘strong trading momentum has continued since the Period end with the number of like for like (‘LFL’) active users in the first 27 days of July 2016 up 21% on the corresponding period in 2015.’
• Alphabet, the parent company of Google, has reported a 21.3% jump in revenues in the quarter to June, pushing net income up from $3.9bn to $4.9bn.
FINANCE & MARKETS:
• The US economy grew more slowly than expected in Q2 & Q1 growth was revised down in a move that makes an interest rate rise in the near term perhaps less likely. Q2 growth was 1.2% and Q1 growth was cut from 1.1% to 0.8%.
• Eurozone growth halved in Q2 as the French economy slowed down. GDP rose by only 0.3% in Q2.
• The UK has put a hold on the proposed $24bn Hinkley Point nuclear plant.
• Property Week has reported that two shopping centres with a combined value of £260m have been pulled in the wake of the 23 June Brexit vote.
• A Reuters poll of economists has suggested that the Bank of England will cut interest rates on 4 August
• A CBI survey has suggested that British bosses expect the UK economy to grind to a virtual halt in Q3 and Q4 this year. The CBI says ‘this data shows a weaker picture for UK economic growth. In manufacturing, although investment intentions are quieter as uncertainty weighs on corporate spending plans, the weaker pound is helping to boost exports’ competitiveness.’
RETAIL NEWS WITH NICK BUBB:
• Saturday Press: The news that plastic bag usage by shoppers has slumped since the introduction of the 5p charge was headline news for some of the Saturday papers, eg the Daily Mail, but apart from that the retail news cupboard was bare, although the Times had a couple of interesting angles on the ongoing BHS/Philip Green saga: thus the Times had an interview with MP Frank Field in which he said of Philip Green’s famous promise to “sort out” the BHS pension deficit that “I thought he would do the decent thing. I mis-read him totally”. But the Times also had a separate article on its News pages with a photo of a paunchy Philip Green on his infamous new super-yacht suggesting that he “may not have the readies” to tackle the £571m BHS pension deficit, because so much of his money is offshore or tied up…In other news, the Times also flagged that
• Sunday Press: The Sunday Times, inevitably, continued its focus on the BHS/Philip Green saga, with a front page Business lead story that the Pensions Regulator has now launched an investigation into the health of the pension schemes in Philip Green’s Arcadia Group as well. The estimable Retail correspondent of the Sunday Times, Oliver Shah, also penned a column arguing that the Pension Regulator should get tough with Philip Green over his promise to sort out the BHS pension deficit. However, the Mail on Sunday noted that Philip Green has accused the Labour MP Frank Field of turning Parliament’s inquiry into the collapse of BHS into “a kangaroo court” and that in a strongly-worded letter Philip restated that he had not broken any laws and that a solution depended on his voluntary cooperation. Oliver Shah’s column in the Sunday Times looked separately at
• News Flow This Week: As we move into August, the big event this week is the Q2 update from Next and their influential CEO Simon Wolfson on Wednesday, but the MPC interest rate announcement on Thursday at mid-day is going to be almost equally interesting. And the Travis Perkins interims tomorrow will also provide a valuable barometer on the outlook for the building and construction trade. We also get the Greggs interims and the Pendragon interims tomorrow, whilst Thursday also brings the SMMT new car sales figures for July and the Pets at Home Q2 trading update.
• Food Retail sector trends: The sector was up a tad overall on Friday (MRW +1.6%, OCDO +0.9%, WINE -1.5%, HOTC -3.8%), but, even so, it was down by 0.6% over last week as whole (with Tesco down by 2.2%). The sector began the year very well, but then dipped and it is now up by only 1.5% cumulatively so far this year, ie it has underperformed the market by nearly 5% to date (in 2014 it underperformed the market by c33% and it underperformed the market in 2015 by c9%).
• General Retail sector trends: The sector edged up by 0.3% overall on Friday (NXT +1.1%, TPT +2.8%, LOOK +2.9%, TED +1.7%, ASC -1.2%, DEB -2.5%, CARD -1.3%, KOOV -21.5%). Over last week as a whole, the sector rallied by 2.2% overall (with Sports Direct up by 9.3%, Game Digital up by 12.4%, Boohoo up 10.3% and Halfords 5.3% up, but with Pendragon 6.8% down and Bonmarche 5.9% down). The sector is now running down cumulatively by 16.1% overall so far this year, c22% worse than the market (having outperformed the market by c13% in 2014 and by c4% in 2015), which still makes it the 2nd worst performing sub-sector in 2016, after Real Estate.
• Grocer Watch: The widely followed Grocer “33” weekly supermarket pricing survey in Saturday’s Grocer magazine saw Morrison’s end Asda’s 3-week winning run: their £64.89 basket was 86p cheaper than Asda, with Tesco in 3rd place on £70.98. A “25% off prosecco” deal helped poor old Waitrose avoid the wooden spoon for once, with their £74.15 basket 87p cheaper than Sainsbury’s. There was also bad news for Asda in the separate Grocer “Mystery Shopper” weekly survey on Store Service and Availability, as its store in Small Heath, Birmingham came bottom of the survey, with a score of just 43 out of 100. The 41,500 sq ft Sainsbury superstore in Gateshead topped the rankings, with a solid score of 83, just beating the 81 scored by Waitrose in Exeter. The Grocer also had a detailed article about Asda’s new meat merchandising approach, posing