Langton Capital – 2016-12-20 – Inflation watching, travel strikes, 1970s feel & other:

Inflation watching, travel strikes, 1970s feel & other:

A DAY IN THE LIFE:

With the big day falling on a Sunday this year, it’s a little uncertain as to which is ‘the last week before Christmas’.

Of course, this week is if you’re just looking at a calendar but it felt, for all the world, as though last week was the big one for parties etc. and, with that in mind, it’s not clear quite how many people are working this week.

The ‘out of office’ replies have stepped up to a new level and the pavements are quiet until much later in the day with lots of folk down the supermarket and many a bloke now desperate to buy that last petrol station present for the family.

Anyway, as we move towards what’s feeling increasingly like a 1970s Christmas – strikes, travel chaos, inflation, shortages, a turn in unemployment, political chaos, social unrest, collapsing Sterling etc. – we’ll be here to the death with, it would appear, increasingly less to talk about. On to the news:

PUNCH TAVERNS BID SITUATION:

• No new developments (unless you know differently, of course).

INFLATION WATCH:

• Food solutions company PSL has reported that the price of fruit & veg rose by 2.3% month-on-month in December

• PSL says y-o-y fruit & veg prices are now some 11.35% up. It says ‘the key drivers…are currency & weather’.

• PSL pints out dairy prices have risen sharply in the UK, up 5.2% m-o-m in December. It says ‘farmers are now starting to see better returns for milk production with an increase in farm gate price of 5.2% m-o-m’. PSL continues ‘feed prices have increased 17% y-o-y along with fuel costs +31% so farmers are still close to break even only’.

• Time for ONS to structure another inflation measure, cut out some bad stuff. How about PPRI (the Prices ex-Price Rises Index)

• Contributions to inflation watch gratefully received.

PUB, RESTAURANT & DRINKS PRODUCERS:

• Private equity firm Lion Capital is in exclusive talks to buy bar chain Loungers for around £140m and could even finish the deal before Christmas. Lion Capital boasts investments in Wagamama and Jimmy Choo and is a frequent acquirer of consumer-facing UK companies. Loungers was established in Bristol in 2002 by Alex Reilly and Jake Bishop, who together own about 50% of the business, and has grown to more than 75 sites.

• The Real Junk Food (RJFM) — a food waste cafe headed up by a former Fat Duck chef — has launched a crowdfunding campaign to open its first semi-permanent restaurant in Manchester. RJFM uses produce which would otherwise be thrown out by supermarkets, wholesalers, and farms and uses this to cook healthy meals for the local community.

• Just Eat chairman John Hughes has sold 235,000 shares in the company at 571.89p (£1.34m), leaving him with 190,000 shares in the online food delivery market place.

• Bosses of some of London’s most popular restaurant chains have demanded help in dealing with the ‘crippling’ costs created by business rates, taxes, and the weak pound. Chief executives of Leon, Pizza Express, Wahaca and others have written in the Evening Standard to warn that the industry needs aid in offsetting a ‘shocking’ combination of new overheads.

• Save the Pub Group chairman Greg Mulholland has accused the BBPA of misleading MPs in a vote on development rights for pubs. While the BBPA claims that the proposed New Clause 9 of the Neighbourhood Planning Bill would mean ‘planning permission would have to be gained for improvements to [existing] pubs, including alterations to the property, such as new fences, signage, internal walls, kitchen development, bar extensions, etc.’ Mulholland and Save the Pub Group assert that the trade body opposes the clause so that large pub companies can ‘continue to convert pubs into supermarkets without needing planning permission.’

• Constellation Brands has completed the sale of its Canadian wine business to Ontario Teachers’ Pension Plan for approximately C$1.03bn.

• Allegra World Coffee Portal’s annual study, Project Café 2017 UK, has found that convenience stores have benefitted from focusing on food-to-go and quality coffee.

• Southern Comfort is to run an ad campaign across Christmas and the New Year in key UK cities including London, Manchester, and Glasgow.

• BrewDog’s crowdcube bond is over halfway to its £10m funding target, with over £5.2m raised of the 7.5% semi-annual bond.

• Tax accounts for some 51% of the average UK family’s festive alcohol shop, compared to 32% in France, per WSTA.

• Lidl is only now recalling two batches of Kania GravyGranules contaminated with xylene after being alerted to the fact more than two weeks ago.

• China’s leading e-retailer, Tmall.com, has tripled its online alcohol sales from 2013 to 2016 thanks to a larger range of wines from around the world.

• JDW buying back shares. The co bought for cancellation 25k shares on both Thursday & Friday last week at around 852p

• US BURGER King franchisee GPS Hospitality has taken on another 194 locations. This is a big company. It takes the group to 424 BK outlets. It says ‘our model works extremely well. You’re taking an old, tired brand that has 100 percent awareness and you reinvigorate it with people with a growth-minded attitude and you remodel restaurants and get systems in place.’

LEISURE TRAVEL & HOTELS:

• Strikes are set to cause misery for travellers over the festive break as baggage handlers at 18 airports across the UK prepare to walk out on Friday and Saturday. Meanwhile, Southern Rail strikes will leave Gatwick Express severely disrupted and BA and Virgin crewmembers also threaten industrial action.

• More than 1,500 of the world’s media and Dubai dignitaries attended the formal opening at the weekend of Dubai Parks and Resorts. The new theme park is the largest in the Middle East and is comprised of three theme parks: Motiongate Dubai, Legoland Dubai and Bollywood Parks Dubai.

• Airbnb is teaming up with Châteaux & Hôtels Collection to list rooms on the platform.

FINANCE & MARKETS:

• After years of telling others what to do, Ms Christine Lagarde has been told by a French court that she is guilty of negligence. There is no punishment as she was ‘busy’ at the time. This is not typically a successful defence when applied by everyday human beings to speeding, jumping a red light etc.

• World markets: UK mixed yesterday with Europe down. US up in later trade & Far East mostly higher today

• Brent around $54.85, down a shade overnight.

• Sterling down further at $1.2395. Little changed vs Euro at 119c.

• Bond rates lower with 30yr US treasuries down 7bps to 3.12%. UK 10yr money down to 1.40%.

YESTERDAY IN A NUTSHELL – SELECTION OF TWEETS, LIVE TWEETS ON WEBSITE:

• Tangible assets at PUB reportedly 285p. Would take several decades to build that estate. Could be worth asset value plus a premium

• Alan McIntosh has indicated his Emerald partnership could/would pay more for Punch than Heineken.

• Punch bid is premium to recent price but material discount to the price at which loyal shareholders supported the company in 2014

• Punch is back in growth; its debt is secure (and fixed) and the vertically integrated model makes perfect sense

• Punch is in play. Directors & (bond) shareholders know co inside out. Due diligence shouldn’t undermine bid, if so downside is to 180p.

• A >200p bid for Punch from Emerald (or from left field) followed by a higher bid from Heineken is perfectly possible.

• Punch read-across to Enterprise (and the unlisted Admiral) is obvious. Other brewers may wish to secure distribution

• Beam Suntory is to buy UK craft gin maker Sipsmith. Simpsmith was founded in a Hammersmith garage 7yrs ago. Premium gin sales rose by 15% in 2015.

• Drake & Morgan reports results for year to end-March, says revenues +17% at £28.8m with LfL sales +2.6%

• D&M FY numbers: EBITDA +12% at £3.6m with PBT up to £1.8m. Group opened King’s Cross unit during the year.

• McDonald’s is partnering with UberEATS at nearly 200 restaurants in Florida from January.

• Deliveroo has made plans for 150 ‘dark kitchens’ aimed at dealing with soaring demand for takeaway orders from upmarket local restaurants

• More talk of 45%, 50% or more of staff in hospitality industry being foreign born. Concerns therefore genuine re source of labour

• Parkdean owners Electra & Alchemy sell company to Onex of Canada for £1.4bn. Group has 73 holiday parks in UK

• Calculus Capital has put £3m into trampoline park operator Jumptastic, which will be used to expand in the UK and Scandinavia.

• Later tweets: Soft commodity prices head south. Cocoa now down 19% on year (all of that in last couple of months), sugar off top, feeder cattle down 22%

• Milk prices in UK on the up. Risen in each of last 4mths to c24p per litre (farm-gate). Got down to 20p but was 34p 2yrs ago.

• Evolution, disruption, call it what you will. McDonald’s in bed with UberEATS & Deliveroo said to be considering 150 ‘dark kitchens’

• Disruption. Still a good idea to question some moves. Would a mega-kitchen work? Would different brands cooperate etc.?

• Amazon’s value for money? Survey of one. Nerf guns, necessary in our house, much cheaper at Tesco.

• Punch. Takeover set to rumble on. Rival moves perhaps not likely (or necessary) until into the New Year.

RETAIL NEWS WITH NICK BUBB:

• McColl’s: Better late than never…we were beginning to wonder if the wretched CMA would ever make up its mind about the mooted acquisition of 298 convenience stores from the Co-op that was announced back on July 13th, but it has announced this morning that it has given its final and unconditional approval to the deal. Knowing how picky the CMA can be, given the overlap of some half a dozen stores, that is a good result, although the news obviously comes much too late for McColls to do anything about it before Christmas. However, McColl’s will begin to integrate the stores in late January 2017 and expects all conversions to be completed by the end of August 2017: “At this point convenience stores will comprise over three quarters of McColl’s total estate, representing the achievement of another significant milestone for the business”.

• Today’s Press and News: Thin pickings in the papers again today, in terms of Retail stories, so we are grateful for the Evening Standard for stepping into the breach last night, by revealing that the new CEO of Debenhams (Sergio Bucher) is thinking of sacking some of its much-vaunted Designers, including the venerable Betty Jackson and Jeff Banks (this story is also followed up by the Daily Mail).

• News Flow This Week: This week is very quiet on the company news flow front, with every retailer busy planning for the last-minute shopping rush on Christmas Eve (on Saturday) and then the Boxing Day Sales (next Monday), but with the end of the month (and the year) approaching rapidly now, the CBI Distributive Trades survey for “December” is out at 11am this morning (a +20% “percentage balance” is expected) and the monthly GFK Consumer Confidence survey is out first thing on Friday.

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